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Icahn backs away from Delek acquisition, pushes board, strategic changes from SNL Energy Finance Daily Icahn backs away from Delek acquisition, pushes board, strategic changesByline: Everett Wheeler Instead of pursuing a merger, Carl Icahn is pushing for board and strategy changes at Delek US Holdings Inc. through his oil refining company CVR Energy Inc. In March 2020, Delek swallowed a poison pill to avert a hostile takeover by CVR Energy after Icahn acquired 14.86% of Delek's outstanding shares. In a Jan. 14 email to Delek CEO Ezra Uzi Yemin, CVR Energy CEO David Lamp sought to dispel rumors that CVR would acquire its rival and offered to "work collaboratively" to replace three board nominees at Delek's 2021 annual shareholder meeting. "When we first started acquiring our interest in Delek, we believed the stock was undervalued and thought the company could present a good synergistic acquisition opportunity for CVR," Lamp wrote. "However, due to the dramatic changes in the industry since that time, we believe we would achieve significantly greater results for our shareholders by devoting capital to internal higher return projects ... or by pursuing diversification opportunities with potential PADD 4 refinery acquisitions. ... we continue to believe Delek's stock is undervalued and that the company would benefit greatly from a board refreshment and a renewed focus on value enhancing ideas." Lamp said Delek should stop refining crude oil at its 74,000 barrel-per-day Krotz Springs, La., and 80,000 b/d El Dorado, Ark., refineries and convert those plants to terminals or reconfigure them for renewable diesel production "or for other purposes." In response to the pandemic, Delek announced in November 2020 that it was adjusting operations at Krotz Springs to give the company the ability to run only those units that are "producing favorable margins" or to ramp crude oil utilization higher "should the macro environment and margins improve." "In our view, neither Krotz Springs nor El Dorado have feedstock or refined product pricing advantages nor the prospects for consistently generating free cash flow," Lamp wrote. "Additionally, the two plants will require significant amounts of capital for turnarounds, regulatory compliance and equipment upgrades and replacements." In addition, Lamp argued Delek should sell its retail gasoline business and use the proceeds to roll up its master limited partnership subsidiary, Delek Logistics Partners LP. "Recent retail sales have reflected healthy multiples," Lamp wrote. "Proceeds ... could be used to buy the 20% of limited partner interests in Delek Logistics currently held by the public without experiencing earnings dilution while strengthening Delek's balance sheet." Lamp added the move would eliminate the costs of supporting a second publicly traded entity. Lamp also said that Delek had a "pattern of dropping down core refining assets" to its MLP subsidiary "at value destroying prices," and that Delek's general and administrative expenses are "excessive compared to its peers." "We consider Delek to be improperly retaining a number of non-core assets that consume company resources such as recurring capital investment, senior management attention and bloated overhead," Lamp said, adding that selling those assets "should provide significant additional cost savings potential." |
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