Selling pipelines was one of the “cost savings initiatives” that billionaire investor Carl Icahn said he would push for, along with other asset sales and reduced capital spending, in a June 4 filing with the Securities & Exchange Commission. Icahn’s 7.6 percent stake won him the right to appoint one of four new directors who will replace almost half the board by June 22 under an overhaul announced earlier this week.
Chesapeake Midstream rose 5.9 percent to $25.60 at 10:11 a.m. in New York. Chesapeake Energy rose 0.8 percent to $17.84.
The talks between Chesapeake and Global Infrastructure predate Icahn’s purchase of his stake, the people with knowledge of the talks said. Chesapeake held a 45.2 percent limited partner interest in the midstream partnership as of Dec. 31, according to a regulatory filing. It also jointly owns Chesapeake Midstream’s general partner with Global Infrastructure.
Michael Kehs, a Chesapeake spokesman, declined to comment, as did Jack Cowell, of Global Infrastructure.
Global Infrastructure, with offices in New York and London, manages more than $10 billion of investments including pipelines, power generation, ports and airports, according to its website.
McClendon, who sits on the boards of both the Midstream pipeline company and its controlling partner, has been under a cloud since a series of media reports in March and April about personal loans he obtained using minority stakes in company- owned wells that he’d been allowed to gather for his private portfolio.
Chesapeake Energy announced May 1 that he will step down as chairman of the parent company when a replacement is chosen.
Shedding pipelines would be a retreat from McClendon’s vision of so-called vertical integration, which involves owning oil and gas fields as well as ancillary assets such as gas- processing plants, drilling rigs and hydraulic-fracturing equipment.
Chesapeake Energy said in its most recent annual report that owning pipelines makes the company more efficient at managing costs involved with gathering and processing gas.
Chesapeake Energy started a pipeline venture with Global Infrastructure in 2009 when the infrastructure investment fund led by Adebayo Ogunlesi bought a stake in some Chesapeake pipelines. They took Chesapeake Midstream public the following year.
Since the initial share sale, Chesapeake Midstream’s units have increased 15 percent, outperforming Chesapeake Energy’s 20 percent decline. The partnership has paid out $492 million in dividends since it became publicly traded.
Chesapeake Energy owned 33.7 million common units, and 34.5 million subordinated units, of Chesapeake Midstream as of Feb. 22. Those interests would be worth about $1.6 billion based on the $24.17 closing price of the common units yesterday.
Copyright 2014 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.