Talisman Energy Inc. (NYSE: TML) is one of the largest independent oil and gas companies in Canada. The Calgary-based oil and gas company headquartered in Alberta, Canada was founded in 1992 after British Petroleum's sale of its 57% stake in BP Canada Ltd.
Talisman currently trades at a share price exceeding $12, up almost 7% YTD. While the company doesn't make quite as sexy headlines, such as Tesla for example, it has managed to reach a wider audience recently, thanks to Carl Icahn, the prominent activist investor and $20 billion-dollar man, who decided to purchase a stake in the company worth around 6% in October 2013.
Carl Icahn's Appearance
If you had already invested in the company before Icahn's move, you will have enjoyed the famous Icahn lift – a term coined to describe how Icahn's reputation to unlock shareholder value often provokes an additional rise in a company's share price once the activist investor steps on the scene. Talisman saw an intraday share price increase of over 4.5% after Icahn tweeted his decision on Oct 7, but the share price has settled down since.
Although there is more to the company than Icahn, it is worth examining the activist investor's history and track record, as well as his typical motives. The man likes to make bold moves, and his motives are usually far more aggressive than most financiers. Many describe him as a ruthless corporate raider, while he likes to describe himself as a proponent of shareholder activism.
Some of Icahn's biggest hits have been questionable from a moral standpoint, for example his asset stripping of TWA after performing a hostile takeover of the company in 1985. The multibillionaire does have a track record of regularly trouncing the stock market indexes. Today, Icahn's technique generally involves buying a significant stake in a company and then utilizing his newly found power to force changes upon management, not uncommonly in a hostile fashion. Icahn likes to consider installing new management too, typically considering current management as greedy and/or incompetent.
The Financial Standing and Future of Talisman Energy
Talisman has grown quickly through mergers and acquisitions. While its roots can be traced back many, many years before the date of its founding, the company now boasts an impressive $12.53B market capitalization on the New York Stock Exchange. Due to the nature of its industry, Talisman operates with a low profit margin (worryingly under 2% in 2012), but the company does have a solid amount of tangible assets. While the company had less than $750M in cash for 2012, its total assets amounted to almost $22B. With almost $12B in liabilities for the same year, the company maintained a level of equity not far off $10B in total. Talisman's balance sheet looks respectable, but something needs to be done about its profits and future overall.
Perhaps this is where Icahn comes in, but be aware of his typical holding period. The Wall Street veteran prefers to NOT hold a stock for very long and enjoys making fast gains. He is an opportunist – very dissimilar to Warren Buffet's longer-term strategy which essentially involves holding stock for as long as possible. In July 2012, Talisman sold a 49% stake in its North Sea Operations for $1.5B to Sinopec. CNOOC, the Chinese state-owned company, made a $15.1B acquisition of Nexen in February 2013. Nexen, being a Canadian oil and gas company also, suggests that Icahn might be planning for another deal of similar proportions.
Talisman looks to have a lot of potential, but its management, likely along with Icahn, would probably want to steer the company in the right direction first before positioning it as an acquisition candidate. It could be argued that the company is not in a good enough financial position to be acquired just yet. An acquisition of Talisman in the future is certainly possible though and the chances of it happening could increase should the company manage to become more profitable and/or CNOOC become accustomed enough with Nexen to consider purchasing Talisman for consolidation.
Alternatively, another confident buyer, domestic or international, might emerge with an interest in the oil and gas company.
Is Talisman Energy an Investment Opportunity?
No one can really say whether or not Icahn is looking to position Talisman for a sale, or whether he is simply looking to install new management in order to support a more positive direction for the company. It is too early to say, but it is safe to say that Icahn is both clever and logical when it comes to spotting investment opportunities. The uncertainty here is mainly being driven by the fact that Talisman and its management have already been working on restructuring the company for quite some time with a turnaround plan.
The responses to the company's progress with that turnaround plan have been mixed. Since Hal Kvisle took over the role as CEO of Talisman after John Manzoni, the company has been focusing on its North America, South America and Southeast Asia operations among other initiatives.
With the addition of Icahn, potential interests from strategic buyers, possible increased oil prices in the future, and continued efforts to turn the company around, Talisman might still be a buy for the individual investor. It should not be forgotten that the company has some attractive, high quality assets, but its management does seem to be open to asset sales to raise cash, which contributes towards the uncertainty of the company's future.
Whether or not you decide to invest in Talisman Energy Inc., there are no guarantees and so it will be interesting to watch the company and any reported developments.
What are your thoughts on Talisman Energy and Carl Icahn's investment?