How Will Chesapeake Energy Corporation (CHK) CEO’s Departure Affect the Stock?

Chesapeake Energy Corporation (NYSE:CHK) announced the retirement of CEO Aubrey McClendon on Jan. 29. Billionaire McClendon is a co-founder and former chairman of Chesapeake. This news came amongst charges of improper use of the company’s resources for personal gains. Media and Investor investigations forced him to quit as chairman of the company last year. However, in an official statement, the company said that this decision is not related to the Board’s pending investigation of his financial arrangements.

Market Reaction

Chesapeake stock saw an increase of 11% and reached as high as $21.15 in the after trading hours on Jan. 29. This reaction from the market clearly gives an idea of investors’ expectations from the company.

Investors are very much upset with the idea that the company’s leadership was focusing on developing wealth for themselves through improper means. They feel that it is high time for a change and believe that letting go of McClendon will give the company a fresh start.

Analysts also feel that a new business strategy can help Chesapeake in balancing its assets against the rising market debt given the volatile economic conditions around the world. The strong brand image of Chesapeake can drive the company away from the present circumstances provided the leadership is committed to increasing shareholder value and profitability.

What Went Wrong?

McCledon built this company from scratch along with the company’s former president Tom L. Ward and today Chesapeake is the second largest producer of natural gas, among the top 15 oil producers and most active drillers in the United States. Even after such an achievement, his so-called retirement is being seen as a positive sign for the future of Chesapeake. Analysts believe that this is mainly because investors have lost their confidence in McClendon’s leadership. Media news regarding his personal loan on his minority stakes of 2.5% in the company-owned wells further deteriorated his market standing and credibility. Moreover, some of these companies from which loans were issued to him were involved in separate financial transactions with Chesapeake. The stock fell by 20% when these findings went public.

Adding more to the chaos, Reuters reported that McClendon was running a $200 million hedge fund that traded in the commodities produced by Chesapeake. This made the company’s largest investors Carl Icahn and Southeastern Asset Management use their voting power for appointing new directors to the board, and they eventually rooted out McClendon from the position of chairman. The new company board launched investigations against him and reduced his compensation by 20%.