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Updated to include M&A prospectus for Woodbine shale and added analyst comments



) -- After speculation throughout May, Carl Icahn unleashed his famed activist guns last Friday when announcing a

7.6% share stake


Chesapeake Energy

(CHK) - Get Chesapeake Energy Corporation Report

. Sort of.

In a scathing letter to Chesapeake's board of directors, Icahn called for the nomination of four shareholder appointed directors as a first cause of action to improve the struggling gas giant's waning finances and share prices. At first glance, the investment and letter is a classic Icahn move to put his money and a mouth behind the shakeup of an industry laggard.

However, unlike a recent string of tender offers for companies as big as


(CLX) - Get Clorox Company Report

and well-wrought divestiture plans for struggling corporates like

Motorola Mobility

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, Icahn's letter doesn't outline many new ideas on how Chesapeake Energy can overcome a $10 billion financial hole and deal with plummeting natural gas prices crimping its cash flow. To make a nice return on his newest activist push, Icahn may need to pull new moves from his investing playbook.

While Icahn's language and his advocacy for shareholder board representation are consistent with previously successful efforts like






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, and

Hain Celestial

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, his Chesapeake investment is short on specific financial moves like tender offers, strategic sales, divestitures and spinoffs that have been a staple of recent campaigns, both successful and not.

Nine months ago, Icahn showed the extent of his financial muscle when he unveiled a $12.6 billion bid for Clorox. Meanwhile, he helped push for asset realizations that led to the sale of

El Paso


and Motorola Mobility, two of the largest deals of 2011. He recently won a $2.6 billion tender offer for

CVR Energy

(CVI) - Get CVR Energy, Inc. Report


In Icahn's letter to Chesapeake, he noted that his activist stance has led to an increase in market value of approximately $55 billion for shareholders at over a dozen companies in recent years. "We would like the opportunity to do the same at Chesapeake," wrote Icahn. Say what you will about the way he wields his financial war chest or how he interacts with corporate America, Icahn has rarely been accused of having too few ideas to unlock a company's value.

That's why Icahn's 7.6% share stake in Chesapeake Energy, which makes him the company's third largest shareholder, is slightly confounding. Aside from board seats, the legendary activist's statements about Chesapeake at times sound similar to the self-promotional talk with which CEO Aubrey McClendon, who co-founded Chesapeake on 1989, is associated.

"We believe that Chesapeake has collected some of the best oil and gas assets in the world," writes Icahn in his letter, echoing a

long-used refrain

of McClendon in earnings releases and on analyst calls.


The stock price suffers because of the enormous risk associated with an ever changing business strategy, enormous capital funding gap, poor governance, and unchecked risk taking," Icahn writes in more contentious language, adding, "

What is important is that this pernicious funding gap, which we believe this board has created, must be filled."

Already, as Icahn talks up board change, Chesapeake Energy is separately putting new oil and gas assets up for sale to meet its funding needs.

On Wednesday, Chesapeake Energy listed 57,000 acres for sale in the Woodbine shale play of East Texas, according to a prospectus from energy asset M&A boutique

Meagher Energy Advisors

, said its president Matthew Meagher. Last week, Chesapeake listed a prospectus for 503,863 of net acres for sale in the DJ Basin of the Niobrara shale of Colorado and Wyoming on Meagher's

Web site


Icahn argues that shareholder representation could help instill discipline and a more singular focus on asset sales.

But Chesapeake's problem and its still sub-$20 share price -- on Wednesday shares hovered at the $16 mark where shares rested before Icahn announced his stake on Friday afternoon -- is not about whether McClendon is serious about asset sales, but about whether the company can execute them quickly enough to meet 2012 funding needs amid falling commodity prices, uncertain debt financing flexibility, and weakened leverage to command high prices in a buyer's market.


For year-end debt to not exceed $12bn (4x $3.0bn), then asset monetizations must reach at least $5.0bn," noted Citigroup analyst Robert Morris. "Without any asset sales, CHK would be non-compliant with its revolving bank credit facility at year end unless spending was cut sharply." Chesapeake expects to cover much of its funding gap through the sale of its Permian assets and a joint venture in the Mississippian Lime, while maintaining its debt covenants -- it recently shelved a planned $1 billion Eagle Ford transaction.

Icahn's letter disappointed in not laying out new concrete actions that Chesapeake could take in selling assets. That comes amid continued expectations that as Chesapeake's market value falls, an oil giant like


(XOM) - Get Exxon Mobil Corporation Report



(CVX) - Get Chevron Corporation Report

could wade into its murky financial picture through an


, though McClendon still clings to a tone of "astounding" the world when his strategy of making Chesapeake No. 1 or No. 2 in each drilling region where it holds acreage and he has never hinted at a "lock, stock and barrel," sale of the company.

Chesapeake has increasingly fewer options given a weak market for gas assets and could find itself in need of selling more of its prized assets, wrote Jefferies analyst Biju Perincheril in a May 29 note to clients assessing Icahn's stake. "Mississippian JV could bring in another $500 million in cash. Beyond these, there is not much visibility. Therefore, the company may have to part ways with a portion of its more lucrative undeveloped acreage in the Eagle Ford or Utica," added Perincheril.

Previously, Southeastern Management supported such asset sales when converting its 13.6% share stake into an activist position and recommending that Chesapeake Energy consider outright sale offers. "We also don't want to use this large price-to-value gap as an excuse to refuse discussions with any potential acquirers," Southeastern CEO Mason Hawkins wrote in the letter.

This is Icahn's second major dip into Chesapeake Energy shares after a successful 2010 stake, but that was a success in which Icahn ultimately gave up the "activist" fight against a resistant Chesapeake board and cashed in his chips quickly.

Icahn has galvanized new calls for a board shakeup after the company agreed to split its chairman and chief executive role. That move, which was initially supported by Chesapeake's largest shareholder

Southeastern Asset Management

, isn't deemed enough by Icahn. In his letter, Icahn referred to the refusal by Chesapeake to consider new directors upon his initial request at a recent dinner with McClendon -- Chesapeake said they were too busy searching for an independent chairman -- "disingenuous and illogical." Icahn wants two board seats for him and Southeastern respectively, in a move to fix what he calls a "substantial credibility gap."

Yet underlying the tough talk about a board shakeup, it's important for investors to remember that a shoring up of the balance sheet through sales asset sales is 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.

One Wall Street analyst who, like McClendon thinks Chesapeake's asset value is far higher than its current share price, didn't view Icahn's stake as cause for an upgrade. "Our hold rating is a function of a nearer term outlook that significantly exposes shareholders to market & commodity risk, however the prospect for real strategic change does bear watching," wrote Deutsche Bank analyst Stephen Richardson, who estimates Chesapeake Energy's assets are worth $35 a share with oil at $95 a barrel and gas trading at $4.50. Oil fell to its lowest price in 2012 on Wednesday, below $88, while natural gas is hovering around the $2.50 mark after dropping below $2 earlier this year.

For Icahn's latest Chesapeake Energy bout to be as successful as his 2010 investment, and actually lead to change in Chesapeake's behavior that benefits long-term shareholders of the company, he'll likely need to outline new asset sale ideas or strategic deals that go beyond previous activist letters and management discussion. In coming quarters, Chesapeake Energy shareholders should watch for more concrete funding ideas to be a cornerstone of Icahn's campaign.

For more on Carl Icahn, see his

investment portfolio

. For more on energy stocks, see the

energy stocks bought and sold by hedge funds

in the latest quarter.

See 5 ways Chesapeake Energy can be

saved from itself for more on how it can initiate a share turnaround.

-- Written by Antoine Gara in New York