Believes Contura Cannot Fully Reverse its
Years-Long Tailspin Until the Company Accelerates its Exit from
Environmentally-Destructive Thermal Coal, Deleverages its Balance
Sheet and Refreshes its Six-Member Board
Contends that Contura’s Legacy Directors are
Unequipped to Effectively Support the Company’s Strong Management
Team, Misaligned with Stockholders and Unqualified in ESG
Areas
Urges Contura to Seek Stockholder Input and
Promptly Overhaul Half of the Company’s Board by Replacing Three
Legacy Directors with New, Highly-Qualified Individuals
MG Capital Management, Ltd. (together with its affiliates, “MG
Capital” or “we"), a long-term stockholder of Contura Energy, Inc.
(NYSE: CTRA) (“Contura” or the “Company”) and owner of
approximately 5.8% of the Company’s outstanding common stock, today
issued the below letter to the Company’s Board of Directors and
filed a Schedule 13D with the U.S. Securities and Exchange
Commission.
***
VIA EMAIL
October 7, 2020
The Board of Directors Contura Energy, Inc. 340 Martin Luther
King Jr. Blvd. Bristol, TN 37620
Dear Members of the Board of Directors:
MG Capital Management, Ltd. (together with its affiliates, “MG
Capital” or “we") is a long-term stockholder of Contura Energy,
Inc. (“Contura” or the “Company”), with ownership of approximately
5.8% of the Company’s outstanding common stock. Since making our
initial investment in Contura in 2016, MG Capital has continuously
assessed the Company’s assets, corporate governance, strategic
decisions and market positioning against the backdrop of our
country’s rapidly-changing energy economy. We are writing to you
today because it has become abundantly clear to us in recent months
that Contura cannot begin to fully reverse its years-long tailspin
until it accelerates its intended exit from the thermal coal
business and refreshes half of the Company’s six-member Board of
Directors (the “Board”).
We are very concerned that Contura, which only two years ago had
a market capitalization of more than $1 billion and a stock price
of more than $75, continuously trades at a staggering discount to
its intrinsic value. As the country’s largest producer of coking
products (a critical input into the steel production supply chain),
Contura is part of the lifeblood of our economy and has a critical
role to play with respect to infrastructure and national security.
Notably, during the last cyclical high in 2011, Alpha Natural
Resources, Inc. (Contura’s predecessor company) reached more than
$12 billion in enterprise value and generated annual EBITDA in
excess of $1 billion. In stark contrast, Contura’s estimated
enterprise value is currently below $550 million.
After recently assessing all of our concerns pertaining to
Contura’s trajectory, we concluded that the Company’s Board – in
particular, legacy directors John Lushefski, Daniel Geiger and
Albert Ferrara, Jr. – lacks the expertise and skills to support a
turnaround in today’s new energy economy. We explain why our team
came to this conclusion in the next section of this letter.
Importantly, we want to take the opportunity to highlight that
David Stetson and the other management team members that assumed
leadership roles in 2019 have been doing an exceptional job
navigating this year’s difficult market environment. We fully
support new management’s decision to begin exiting the
environmentally-destructive thermal coal business and look forward
to Contura quickly having little-to-no exposure to this segment of
the market. We are also impressed by management’s continued focus
on containing costs and targeting debt reduction, which can
eventually enable the Company to resume its buyback program in a
thoughtful manner.
In our view, Mr. Stetson and the
high-quality executives that he has recruited deserve to be
supported by a refreshed Board that possesses complementary
skillsets, diverse viewpoints and meaningful ownership
perspectives. The new management team and long-suffering
stockholders should not have to be shackled to ineffective legacy
directors with a history of reaping outsized compensation for
overseeing massive value destruction.
The Case for Change in
Contura’s Boardroom is Crystal Clear
We contend that Contura’s new management has inherited a Board
that is ill-equipped and poorly-aligned. It looks as if none of the
long-serving directors – other than Mr. Stetson – have the
expertise needed to support management’s growth, modernization and
efficiency plans. It is also a red flag that the Board is not
sufficiently aligned with stockholders. Excluding Mr. Stetson,
Contura directors have average holdings of approximately 17,000
shares of common stock.
Messrs. Lushefski, Geiger and Ferrara have also seemingly failed
as allocators of capital, authorizing stock buybacks at peak cycle
prices ($31.54 per share vs. $7.92 at Friday’s close) and saddling
the Company with dangerous levels of debt. Indeed, while these
directors were endorsing stock buybacks, they were also selling
stock themselves. In 2019, our research indicates that Mr.
Lushefski sold stock between $61.15 and $52.67, Mr. Geiger sold
stock between $62.99 and $29.07 and Mr. Ferrara sold stock at $53.
These same individuals have also shown what we believe is an
inability to effectively assess strategic transactions in today’s
marketplace, like Contura’s mishandled Powder River Basin sale.
Most disappointing, however, is the Board’s reaction to the
COVID-19 crisis. It appears that Contura’s directors have
maintained their significant Board compensation as the Company has
had few options other than to shutter assets and furlough
employees. For context, in 2019, Mr. Lushefski was paid $293,000,
Mr. Geiger was paid $216,000 and Mr. Ferrara was paid $266,000. We
deem these to be outsized sums given that these legacy directors
have overseen hundreds of millions of dollars in value destruction
and presided over sobering job losses. Perhaps all of the members
of the Board are not aware of industry estimates that show the
average miner in West Virginia makes less than $55,000 per
year.
We were unsurprised upon learning that these legacy directors
also enjoy little support from other stockholders, proxy advisory
firms and the Company’s broader stakeholder set. Ahead of Contura’s
2020 Annual Meeting of Stockholders, Institutional Shareholder
Services, Inc. (“ISS”) recommended that the Company’s stockholders
withhold votes for an astonishing 50% of the Board. ISS also failed
Contura on every climate awareness metric in 2019. We believe
Contura’s legacy directors have repeatedly failed to embrace best
practices when it comes to environmental, social and governance
(“ESG”) criteria.
Now is the Time to
Refresh Contura’s Board
As a major stockholder with significant knowledge of Contura’s
business and market, MG Capital hopes a Company representative will
quickly engage with us and seek our input on a prompt director
refreshment program. We are prepared to share proposed candidates
for appointment to the Board, including ones with strong capital
allocation acumen, new energy expertise, regulatory experience and
ESG knowhow. Contura’s dismal results speak for themself and we
suspect stockholders will not react well to a delay.
Please be advised that MG Capital is
prepared to nominate director candidates ahead of Contura’s 2021
Annual Meeting of Stockholders if the incumbent Board forces us to
do so. However, that is not our first choice.
Sincerely,
Michael Gorzynski Managing Member MG Capital
View source
version on businesswire.com: https://www.businesswire.com/news/home/20201007005145/en/
Profile Greg Marose / Charlotte Kiaie, 347-343-2999
gmarose@profileadvisors.com / ckiaie@profileadvisors.com
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