WhiteHawk Energy laments PHX Minerals for being unengaged in proposed buyout

Following months of private conversations, WhiteHawk Energy LLC, a natural gas mineral and royalty company, is going public in its attempt to buy PHX Minerals Inc. in an effort to be transparent and ensure that all stockholders are fully informed and can advocate for an outcome that maximizes value for everyone involved.

“We are disappointed that PHX has been unwilling to engage with WhiteHawk over the past 18 months, which has forced us to make public this proposal,” WhiteHawk Chairman and CEO Daniel Herz said Monday in a statement. “Over that period of time, we have adjusted our proposals to meet the ever-shifting requests of PHX and provided everything we believe necessary to pursue a value enhancing transaction for all PHX stockholders.

“We strongly believe that our proposal is in the best interest of all stockholders involved,” Herz added, “and believe it is imperative to publicly illuminate the destruction of value, as compared to the opportunity for a sale at a significant premium.”

Herz reiterated his concerns in an Oct. 14 letter sent to Mark Behrman, chairman of the Board of Directors for PHX, a natural gas company based in Texas, that highlights PHX stockholders suffering from excessive general and administrative (G&A) expenses, dilutive acquisitions, minimal dividends, and as a result, persistent stock price underperformance.

The letter details the efforts WhiteHawk has made over the past year and a half to engage with PHX to maximize value for stockholders through a transaction under which WhiteHawk proposes that PHX common stockholders would receive $4 per share in cash from WhiteHawk, and qualified stockholders of PHX would have the opportunity to exchange all or a portion of their common shares of PHX for common shares of WhiteHawk, to benefit from the value enhancement of the combined business.

“WhiteHawk’s $4 per share offer not only represents a premium to PHX’s 52-week high, but it is also greater than PHX’s closing price on 98 percent of all trading days since 2021,” Herz wrote. “This includes prolonged periods where natural gas prices traded over two times higher than prices today, yet PHX’s stock has not shown an ability to take advantage of these periods.

“We remain confident that your existing stockholders will be supportive of this transaction and will view $4 per share as a great outcome in any gas price environment given how the stock has traded over the last several years,” he added.

According to the letter, WhiteHawk has been acquiring shares of PHX common stock in the open market over the past several months, and now owns 946,506 shares or approximately 2.5 percent of PHX’s outstanding common stock. As a stockholder of PHX, Herz wrote that WhiteHawk thinks its alignment with other stockholders provides a strong foundation for collaboration and a mutually beneficial outcome.

However, “our efforts to initiate a meaningful dialogue have been met with minimal response,” he wrote. “Given our conviction that a transaction represents a significant opportunity to create value for all of your stockholders, we feel compelled to once again take our efforts public.”

Herz also highlighted the “significant destruction of stockholder value” by PHX management since early 2020, when the current executive leadership was appointed. During this period, management attempted to steer PHX in a new strategic direction, but Herz said those efforts failed to generate value for stockholders.

“Since 2020, PHX has consumed over $40 million of cash G&A, while over that same period returning to stockholders less than $12 million in dividends,” Herz said in his statement. “Additionally, PHX’s stock price performance has lagged its publicly traded mineral peers, gas weighted E&P producers, and just about every other index since 2020.

“We urge PHX’s Board of Directors to finally engage in good faith around our proposal and look forward to a mutually beneficial transaction,” he said.

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