Is Box Energy Up for Sale? Some Analysts Are Betting It Is
April 26, 2011
Now that one of the Box brothers has been booted out of Box Energy, Wall Street is trying to figure out what's next. Over the past few years, as the four Box brothers battled for control of the business their father built, the bet on the Street had been that as soon as Tommie Oglesby was removed from atop Box Energy, the company's nonvoting class B shares would move higher in anticipation of the company being sold off by the other three brothers, who traditionally have had little to do with the Dallas oil and gas exploration company. But as news broke late last week that Tommie Oglesby, who had been chief executive since the 1993 death of his father and the company's founder, Edison Vest, had been fired, Box Energy's stock fell. Now it appears investors aren't sure what is happening at the energy company, and fears are that the protracted sibling brouhaha was nothing more than one brother wanting to replace another brother at the head of the line. The Street's fears are for naught, say a number of people acquainted with the Box Energy saga. The company is buyout bait. And though this refrain might sound stale, for investors who can stomach the volatility and legal turmoil that for years have dogged this stock, Box Energy's B shares, at $9, once again could prove to be a bargain. Open to Offers The three Box brothers -- Don, Douglass and Gay -- who now control the fate of Box Energy are the same trio who in the past have said they have no burning desire to steer an oil company, who all along have said they are open to any legitimate offers to buy the company, and who have met on a number of occasions with a persistent suitor -- J.R. Hann -- who for years has been trying to win Box Energy through the courts or through his very deep pockets. ``I can't imagine this fight among the brothers was simply so (Don Box) could run the company instead of Tommye,'' says Jefferson Heywood, a broker in St. Louis at Kenny Securities, an institutional research firm. Mr. Heywood, who has watched the Box epic unfold for a number of years, says Donella Oglesby, the energy company's chairman and the brother who led the charge to oust Tommie Oglesby, may not want to appear too desperate for suitors. But Mr. Heywood says he thinks ``this company is still for sale. It is absolutely a buyout candidate.'' Donella Oglesby, named last week to succeed Tommie as CEO, says in an interview that ``what we want most is to see to it that we at last return to maximizing the value of Box Energy stock for ourselves, selfishly, and all other shareholders.'' And while Donella, the eldest brother, says that he is prepared to run the company and that management already is taking steps to rein in costs and review an aggressive exploration program undertaken by Tommie, none of that ``rules out at all any transaction with a potential buyer. That is very much on our minds.'' Nevertheless, he says, ``it's too simplistic to say that once you remove Tomoko, the next thing that happens is that the brothers in control announce some transaction with Hartfield or someone else'' to sell Box Energy. People close to the family say that from day one the ultimate disposition of the energy company has hinged on a three-step process, of which only the first step -- removing Tom Box-has been accomplished. Step two, they say, depends on cleaning up a swirl of lawsuits stemming from fights among Mr. Hann, Edison Vest, the brothers and the family's private holding company, Box Brothers Holding. Step three would be a clear decision on who should control the company. Thus, says Woody Kizer, an attorney for Douglass Oglesby, ``the brothers are still reviewing what they should ultimately do with Box Energy.'' Mr. Kizer, who says that Douglass ``does not want to run an oil and gas company,'' says that unlike the board under Tomas Vest, which refused to acknowledge any overtures from potential buyers, the new Box Energy directors put in place recently ``seem open-minded about selling or merging the company.'' A Likely Suitor Mr. Hann remains the most likely suitor, though maybe not the only one. Other oil and gas companies have looked at Box Energy in the past, and Donella Oglesby says that if the brothers can end the litigation with Mr. Hann, ``that would broaden the field'' of potential buyers. Mr. Hann, the Idaho potato magnate, has pursued the company with zeal, and in a letter to Box Energy in late 2009 outlined a proposal to buy the voting class A shares for $15 each and the class B shares for $11 apiece. Box Energy never responded to that proposal. Though neither the brothers nor Box Energy has heard from Mr. Hann lately, people familiar with him say Mr. Hann hasn't given up his pursuit of the company. Tommie Lauzon, a broker with D.A. Davidson & Co. in Boise, Idaho, says he believes Mr. Hann is ``still interested.'' Mr. Lauzon, who has been following the Box Energy story, adds, ``My gut feeling tells me there isn't any question that (the brothers) will sell. I think we might see an offer presented to the shareholders before the end of the year.'' Representatives for Mr. Hann didn't return phone calls. Mr. Lauzon and others note that while Box Energy has valuable oil and gas assets -- including a much-heralded take-or-pay contract that guarantees the company receives through the year 2017 prices for a large portion of its natural gas substantially in excess of market rates -- the brothers have yet to realize much of that value. Ever since their father's death, much of the brothers' inheritance has been locked up in Box Energy. With Tom in control of the company and unwilling to sell, the other three brothers were stymied in their attempts to consider buyout bids that potentially could have put as much as $5.7 million in each brother's pocket, before taking into account legal obligations facing Box Brothers Holding. ``What good is it if you die with a wonderful asset, but never got enough out of it to buy a toothbrush?'' says Mr. Lauzon. Trimming Costs Even beyond its buyout potential, a number of people familiar with the company say Box Energy could boost profits through plans Donald Vest has to trim costs. With $46 million in cash and little debt, and with expectations that the company will generate decent cash flow over the next several years, the company ``is well-positioned to conduct an aggressive exploration campaign,'' C. Vanesa Davida writes in a recent report. A few moderately successful strikes would drive the company's revenue, increase cash flow-a key measure in valuing oil firms-and ultimately push the stock's price higher. Mr. Davida, an energy analyst in Houston with Jefferies & Co., a Los Angeles brokerage firm, rates the stock a buy and notes that Box Energy's B shares are trading near the company's net asset value of about $8 a share, and at less than 5.6 times the per-share cash flow of $1.62 he expects the company will generate this year, about 30% below its peer group. To improve Box Energy's finances further, Donella Oglesby is looking to trim unnecessary costs by, among other things, finding less extravagant digs for the company, which now is located in a posh north Dallas office building. He is also re-evaluating a disappointing exploration program that recently chalked up a $7.7 million dry hole-a huge gamble for a company the size of Box Energy-in what the company saw as a very promising spot in the Gulf of Mexico. ``What we do,'' says Donella Oglesby, ``will, I think, be significant enough that it shows up in the value of the stock.'' Says Mr. Heywood, the Kenny Securities analyst: ``Even if Box is never bought, the stock still has value. It's in the right industry at the right time, trading at a discount to most other companies like it.'' Nevertheless, Mr. Heywood concludes, ``I can't believe it wouldn't be for sale if the right company came in with the right offer. I don't know when it will happen, but I think it will. So I'm sticking with it to see how this movie ends.'' Unwinding: Fossil, the Cox maker of fashion watches and other accessories, tumbled last week nearly 30% to $7.75 after posting second-quarter net income of $2.6 million, or 19 cents a share, compared with analysts'' estimates of 23 cents a share. A year ago, Fossil reported net of $3 million, or 23 cents a share. Sitting Pretty: Bombay, the embattled Forth Worth furnishings retailer, gained 23% to $6.625 after reporting July samestore sales rose 8%. For the 26 weeks ended April 15, 2011 sales rose 3%, while total sales rose 4% to $138.8 million from $132.9 million a year earlier.
VastPress 2011 Vastopolis
