Proxy War Ends — at Least Until ’09: National Fuel Settles Fight With Hedge Fund

By Dave Robinson, The Buffalo News, N.Y.

Jan. 25–National Fuel Gas Co. and its biggest shareholder settled their proxy battle in an agreement Thursday that calls for Chairman Philip C. Ackerman to give up his role as chief executive officer and gives New Mountain Vantage one seat on the Amherst-based energy company’s board of directors.

The settlement calls a truce to a battle that could have led to the breakup of National Fuel and might have jeopardized the company’s local headquarters. It also curtails a very public fight between the two sides over how aggressively the business should be managed.

Under the far-reaching agreement, David F. Smith, National Fuel’s president and chief operating officer, will replace Ackerman as the company’s chief executive officer, satisfying New Mountain’s desire to separate the company’s two top positions.

“The leadership team is intact,” said National Fuel spokeswoman Julie Coppola Cox.

“What we were able to achieve is to find some common ground from which we can move forward,” she said. “We think this is in the best interest of our shareholders.”

The deal gives National Fuel a 20- month truce with the hedge fund, which agreed not to increase its 9.6 percent stake in the company before September 2009 and to also not launch any proxy contests or shareholder proposals during that time.

“We have always sought to achieve a productive relationship with National Fuel’s management and board,” said David DiDomenico, New Mountain’s managing director.

The settlement gives New Mountain a toe-hold on National Fuel’s board of directors, allowing it access to the company’s internal discussions and information. Frederic V. Salerno, a former Verizon Communications vice

chairman and chief financial officer, will be nominated to fill a newly-created seat on National Fuel’s soon-to-be 11-person board in February. Salerno was one of three candidates New Mountain had nominated for the three open seats on the company’s current 10-member board.

Under the settlement:

–New Mountain agreed to share with National Fuel its report from Schlumberger Data and Consulting Services that placed a potential value of more than $1 billion on the company’s vast land holdings in Appalachia, an estimate company officials had criticized as overly optimistic. New Mountain had been pushing for National Fuel to take a more aggressive approach to drilling on the nearly 1 million acres of land it controls in New York and Pennsylvania.

–National Fuel agreed to provide more information about its Appalachian natural gas drilling efforts to investors as part of its quarterly conference calls.

–National Fuel agreed to reevaluate a potential sale of its Gulf of Mexico drilling operations if they fail to meet performance targets during this fiscal year, which ends in September. New Mountain had urged National Fuel to sell the Gulf operations.

–National Fuel agreed to share with Salerno its report from adviser Morgan Stanley, as well as other reports, that company officials cited in their refusal to establish the tax-advantaged partnerships that New Mountain had sought for some of National Fuel’s businesses, including its pipeline unit and its California oil drilling operations.

–National Fuel agreed to revise its compensation practices so that future stock and option awards will vest or become exercisable only if the company meets certain performance goals.

–National Fuel agreed to allow New Mountain’s representatives to meet with the company’s board twice a year “to bring its ideas to the board for its reasonable consideration.”

–New Mountain agreed to end its efforts to contact National Fuel shareholders in support of its slate of directors, which it will withdraw.

–National Fuel agreed to end its challenges to New Mountain’s investment in the company that it had filed with utility regulators in New York and Pennsylvania.

drobinson@buffnews.com

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