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Firm: Contura Power, Inc. (CTRA)

Enterprise: Contura is giant scale supplier of metallurgical (“met”) and thermal coal. The corporate has mining operations throughout coal basins in Pennsylvania, Virginia and West Virginia. It provides each metallurgical coal to supply metal and thermal coal to generate energy. The met coal enterprise is the biggest producer of coking merchandise, that are essential elements of metal manufacturing. The met coal enterprise makes up greater than 75% of the corporate’s whole income. The thermal coal is primarily offered to the home energy era trade.

Inventory Market Worth: $118 million ($6.45 per share)

Activist: MG Capital Administration

Share Possession:  5.8%

Common Price: $4.33

Activist Commentary: MG Capital is an funding firm managed by Michael Gorzynski since 2011. Previous to that Gorzynski was an analyst at Third Level for 5 years, and now appears to be taking a web page out of Dan Loeb’s guide. Gorzynski’s solely different 13D submitting was made in early 2020 the place he was in a position to settle at HC2 Holdings for 2 board seats on the six individual board after nominating a full slate of six administrators.

What’s Occurring

On October 7, 2020, MG Capital despatched a letter to the corporate’s board expressing its perception that the corporate can not start to completely reverse its years-long tailspin till it accelerates its supposed exit from the thermal coal enterprise and refreshes half of the six-person Board. MG Capital famous that particularly, legacy administrators John Lushefski, Daniel Geiger and Albert Ferrara, Jr. lack the experience and abilities to help a turnaround in right this moment’s new vitality economic system. MG Capital acknowledged that they’re ready to share proposed candidates with the corporate and hopes that an organization consultant will rapidly interact with them. They finish the letter by advising the corporate that though not their first selection, they’re ready to appoint administrators to the board forward of the 2021 annual assembly if the incumbent board forces them to take action.

Behind the Scenes

Gorzynski is accustomed to Contura Power — the predecessor firm, Alpha Pure Assets acquired Massey Power, an organization that Dan Loeb went activist on in 2005 when Gorzynski was an analyst at Third Level. Over a decade later, Gorzynski was concerned with the corporate’s restructuring after rising from chapter in 2016. In reference to the corporate’s chapter emergence, it was break up into two principal corporations – Alpha Pure Assets and Contura Power; nevertheless, the businesses ended up merging again into Contura Power in 2018.

The corporate introduced on a brand new CEO, David Stetson, in July 2019, and MG Capital believes he has carried out an distinctive job navigating this yr’s tough market atmosphere, they help his determination to start exiting the thermal coal enterprise and are impressed together with his concentrate on containing prices and focusing on debt discount. They simply consider he deserves a board that can higher help the route he’s heading in.

One half of the corporate’s board was inherited from its pre-bankruptcy predecessor and MG Capital takes situation with lots of the selections this Board has made. For instance, the sale of the Powder River Basin, one of many largest coal mining areas within the US, was botched, ensuing within the property being returned to the corporate. Moreover, as a substitute of specializing in lowering debt, the corporate purchased again inventory at peak cycle costs whereas the three administrators had been periodically promoting their very own private holdings of Contura inventory.

MG Capital factors out that this board has overseen large destruction in shareholder worth – since hitting its all-time excessive of $81 per share on September 23, 2018, the corporate’s inventory has fallen 90%, and over the previous 1 and three yr intervals, the inventory has returned -66.41% and -86.66% in comparison with 16.46% and 34.25% for the S&P 500, respectively. MG Capital can also be disenchanted that the board members haven’t taken a minimize of their pay regardless of shuttering property, furloughing staff and overseeing a whole bunch of thousands and thousands of {dollars} in worth destruction.

MG Capital is trying to refresh the board to help administration’s concentrate on coking merchandise, varied efficiencies, price containment, changing into extra price aggressive and paying down debt, which may ultimately permit the corporate to renew its buyback program.

If this goes to a proxy combat, MG Capital ought to have an affordable probability of victory – previous to its final annual assembly, ISS really useful that the corporate’s stockholders withhold votes for an astonishing 50% of the Board, and the three administrators that MG Capital singled out obtained the best variety of withhold votes ultimately yr’s annual assembly (Lushefski-29%; Geiger-17% and Ferrara, Jr.-35%). Whereas this would possibly seem like an ESG marketing campaign, MG Capital just isn’t an environmental activist. That is only a state of affairs the place enhancing shareholder worth occurs to align immediately with strengthening the Firm’s ESG practices.

Ken Squire is the founder and president of 13D Monitor, an institutional analysis service on shareholder activism, and the founder and portfolio supervisor of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments.