The activist investors putting the heat on real estate and natural resources company Forestar Group Inc.(FOR) - Get Report said Tuesday they believe they are at an impasse with the company over possible changes and are considering all options to them as shareholders.

The investors, SpringOwl Asset Management LLC and Cove Street Capital LLC, which own 7% of Forestar's stock, said in a telephone interview that they spoke with the company as recently as last week and have made certain specific suggestions regarding board composition. However, they wouldn't reveal who those specific people were.

Also Read: Forestar Comments On Letter From SpringOwl And Cove Street

The investors' options could include a possible proxy fight. In the past, shareholders have typically had to notify the company in February of any nominees to its board.

The investors said they haven't been given information on the strategic review by Goldman, Sachs & Co., which was announced in December, but believe that there's substantial upside to the company's stock price.

"We've been given zero visibility into the strategic process," SpringOwl managing member Andrew Wallach said in the interview. "We would very much like to continue to have an open dialogue to resolve this in a way that's highly constructive. We've made some reasonable requests but have hit an impasse."

Forestar chairman Kenneth Jastrow and CEO and president Jim DeCosmo didn't respond to requests for comment.

The real estate assets alone are worth more than $20 per share, according to some who have studied the company. Forestar's stock closed at $14.71 on Tuesday, down almost 4%.

In an open letter to other Forestar shareholders, SpringOwl and Cove Street said the company needed to focus on its real estate business and stop all nonessential oil and gas spending. They also questioned whether the board and its longtime banker Goldman were the best choices for a strategic review and criticized the company for poor capital allocation and questionable corporate governance practices.

The investors claimed they have been working with the company for two years on capital allocation issues, "the wisdom, or lack thereof," of its oil and gas investments and compensation and corporate governance issues.

SpringOwl and Cove Street filed a Schedule 13D with the Securities & Exchange Commission on Nov. 14 saying they had amassed a 6.2% stake in the company and suggested the company review strategic alternatives for its oil and gas business, evaluate and refine its capital allocation strategy and initiate changes to its governance structure and board composition. They requested the opportunity to present their analysis to the company's board at its next meeting.

Forestar CEO and president Jim DeCosmo responded Nov. 17 that the company had held discussions with the investors and expected to continue doing so but that Forestar was committed to successfully executing its strategy, which includes its "Growing FORward" initiatives.

On Dec. 8 Forestar announced it had hired Goldman to advise it on strategic alternatives for its oil and gas business to enhance shareholder value. The company's top oil and gas executive, Flavious Smith Jr., left the company that same month and is now running his own family office with interests and investments in oil and gas, real estate and aviation.

Austin, Texas-based Forestar owns directly or through ventures almost 120,000 acres of real estate in 10 states and 13 markets in the U.S. with projects representing 24,400 acres in the entitlement process. It also has 73 entitled, developed and under development projects in eight states and 13 markets covering 11,300 acres, including 17,800 planned residential lots and 2,000 commercial acres.

Its oil and gas segment has 948,000 net acres of oil and gas mineral interests, with 590,000 acres of fee ownership in Texas, Louisiana, Alabama and Georgia and 358,000 net acres of leasehold interests in Nebraska, Kansas, Oklahoma, North Dakota and Texas. The company also sells wood fiber, manages recreational leases and has 1.5 million acres of groundwater resources.

SpringOwl was formed last year through the merger of Cumberland Associates and Jason Ader's Ader Investment Management to focus on activist situations.

David Rosewater at Schulte Roth & Zabel LLP is counseling the investors.

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