Mount Kellett Boosts Its Stake in SandRidge Energy Inc. (SD)

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At the beginning of January, SandRidge Energy Inc. (NYSE:SD), a $2.6 billion market cap exploration and production company which primarily produces natural gas, was one of the largest holdings by market value in Mount Kellett Capital Management’s portfolio. Find more stocks Mount Kellett owned. An activist battle has been brewing at SandRidge. On the one hand, investors such as Mount Kellett and TPG-Axon Capital Management have been trying to remove unpopular CEO Tom Ward; the CEO of peer Chesapeake Energy Corporation (NYSE:CHK) was recently forced outfollowing questionable business practices and a history of overexpansion, which may have emboldened the activists. On the other hand, some investors- including Prem Watsa’s Fairfax Financial Holdings- are standing by management.

Now Mount Kellett, which is managed by Mark McGoldrick and Jason Maynard, has filed with the SEC to disclose that it has purchased an additional 3 million shares of SandRidge Energy Inc. This brings the fund’s total ownership above 25 million shares and to 5.1% of the total shares outstanding. Recently, both the activists and the company came to an arrangement under which it is essentially TPG-Axon’s decision to either replace Ward or gain majority control over the Board of Directors. Shortly afterward, Ward sold a significant percentage of his stock holdings.

SandRidgeTPG-Axon (check out TPG-Axon’s favorite stocks), Mount Kellett, and Fairfax were three of the largest holders of SandRidge Energy Inc. (NYSE:SD) stock out of the hedge funds and other notable investors which we track in our database of 13F filings. They were joined by billionaire Leon Cooperman’s Omega Advisors, which initiated a position of over 24 million shares between October and December 2012; in an interview earlier this year, Cooperman claimed that his team had not made up their minds regarding the struggle over the company. See Cooperman’s stock picks.

SandRidge Energy Inc. (NYSE:SD)’s stock price has fallen 33% in the last year, and 14% of the outstanding shares are held short. Wall Street analysts expect the company to be unprofitable both this year and next year, at the same time that they are expecting Chesapeake to at least achieve positive earnings. We’d also note that SandRidge Energy Inc. (NYSE:SD)’s beta is 3.0, reflecting that the stock is very responsive to changes in broader market indices.

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