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Carl Icahn Rumors Aren't a Reason to Buy Chesapeake Energy

Stocks in this article: CHK XOM

NEW YORK ( TheStreet) -- With rumors again circulating that activist investor Carl Icahn is amassing a big stake in Chesapeake Energy (CHK), it's important for investors to remember that a shoring up of the balance sheet will be the key focus for the oil and gas company in 2012.

With or without Icahn, asset sales are the make or break issue as the company tries to bridge a funding gap while tilting its energy portfolio longer-term toward oil amid decade low natural gas prices.

Carl Icahn

Late on Thursday, Bloomberg reported that Icahn is poised to take a 4% stake in Chesapeake Energy, citing unnamed sources. Such a share stake would make Icahn among Chesapeake's five largest shareholders and re-open a position in the Oklahoma City-based company's shares after Icahn took a 5.8% stake in December 2010 and quickly cashed out months later. Bloomberg is the latest, not the first to report the Icahn activity. The rumor has been in the press for several weeks, ever since Chesapeake Energy shares fell below $14.

Amid weaker than expected first quarter earnings and concerns about its ability to sell assets and raise much needed capital, Chesapeake Energy CEO Aubrey McClendon was happy to fan previous speculation of Icahn's interest in the company's shares, which have fallen 30% year-to-date.

"We wouldn't be surprised if Carl became a large shareholder," said CEO McClendon on a May 14 analyst call after releasing its 10-Q filing with the Securities and Exchange Commission. "He made, I think, over $500 million and he called me to thank me when it was all over," added McClendon when asked about Icahn's investment. "I have a good relationship with Carl."

Icahn, who has decades of activist investing stripes, and other vocal shareholders could further push for governance changes at Chesapeake Energy after the company split its chairman and CEO roles amid revelations of CEO McClendon's potential conflicts in his stewardship of the company.

In May, Moody's downgraded Chesapeake Energy's rating outlook from stable to negative, citing funding gap and the impact of CEO Aubrey McClendon's alleged conflicts.

Still, reports of an Icahn investment and a separate CNBC report that BlackRock is bumping up its Chesapeake stake should be of a secondary importance for investors. CNBC reported that BlackRock has increased its stake from 1 million shares to 4 million to 5 million shares, yet this refers to one Blackrock affiliate. BlackRock Advisors and Blackrock Institutional Trust Co. already hold significantly larger stakes in Chesapeake Energy as of March 31, placing them among the top institutional fund holders of the energy company's shares.

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