Investor Kimmeridge urges Devon after Coterra merger to pursue asset sales

Kimmeridge urged Devon Energy's new incoming board on Tuesday to quickly pursue asset sales, improve the capital allocation and revamp executive pay to boost shareholder returns after its merger with Coterra Energy is completed.

According to LSEG, Kimmeridge Investments, a well known activist investor in energy, owns about 1.4% of Devon.

Kimmeridge warned that the combined company could suffer a "conglomerate discounts" if it does not streamline its business, and focus on high-margin asset. This is despite the fact that this deal will create scale and potential for free cash flow.

The deal announced in February and expected to close by May 4 will create a giant U.S. producer of shale oil?with a value of $58 billion.

A spokesperson for Devon told us that the merger with Coterra will improve their cost of capital and facilitate a new program of share repurchases in excess of $5 Billion.

The spokesperson said that "we will continue to engage all of our investors as we assess additional opportunities for value creation and?work to achieve the full value of this combination."

Coterra has not responded to the?'Einen request for comment. Coterra did not immediately respond to?'vermögen request for comment.

Kimmeridge asked Devon to outline its "post-merger" strategy as soon as possible, including "clear priorities regarding capital allocation, asset ownership, and return thresholds."

The report also called for a "rapid" divestment of non-core assets. It said that a more focused business would improve capital efficiency.

Mark Viviano, Managing Partner of?the future Board, said in an open letter: "Scale by itself does not create value. Discipline and execution do."

Kimmeridge has also called for changes in executive compensation. He recommends that all incentives be based on performance. Reporting by Arunima and Vallari Srivastava from Bengaluru, editing by Leroy Leo

(source: Reuters)