For CEOs Like McClendon, Buyout Game Can Be Second Act

For CEOs Like McClendon, Buyout Game Can Be Second Act

As Aubrey McClendon's days as Chesapeake Energy Corp.'s chief executive tick down, he's exploring ways to remain in the energy game.

Less than two months after agreeing to leave Chesapeake under pressure from shareholders over his free-spending ways, Mr. McClendon is meeting with private-equity investors and others to discuss potentially teaming up for new ventures, according to several people familiar with the discussions.

Mr. McClendon also has spoken with energy executives who in the past worked with buyout shops. At this juncture, Mr. McClendon is asking more questions than he is sharing details of future plans. Among his queries: How much autonomy and control would he have if he received financing from a Wall Street firm, according to one person he's spoken with.

Mr. McClendon, 53 years old, has some employees for his next venture, according to a person familiar with the matter, and secured office space in a six-story, glass-and-concrete building in Oklahoma City. His new digs are about a mile east of the sprawling, university-like campus he helped design for Chesapeake, the energy power he co-founded in 1989.

Mr. McClendon declined to comment.

If Mr. McClendon ends up in private equity, he will be following a path trod by other high-profile executives who have landed on their feet in the private-equity world.

Robert Nardelli, the former chief executive of Chrysler Group LLC and Home Depot, in 2009 joined private-equity firm Cerberus Capital Management LP. He left a year ago to focus on his own investment firm, he said at the time. He declined to comment.

Lord John Browne, who resigned as chief executive officer of BP in 2007, joined Riverstone Holdings LLC. He couldn't be reached for comment.

The relationship can be symbiotic: Private-equity firms crave the expertise and Rolodexes of former top managers, while the executives like working away from public scrutiny and the tyranny of quarterly earnings.

Performance isn't judged on "what happens from quarter to quarter, it's about what happens to the fund over the life of the fund," said David B. Miller, who co-founded private-equity firm EnCap Investments LLC after running an energy company, Maze Exploration Inc.

One challenge, Mr. Miller said, is that institutional investors tend to have lower risk tolerance than shareholders in public stock markets.

Set to step down from Chesapeake by April 1, Mr. McClendon is leaving on a low note. After building Chesapeake into the nation's second-biggest natural-gas producer after Exxon Mobil Corp., his last year at the company was marred by a wrong-way bet on natural gas that left the company exposed to a collapse in prices.

Meanwhile, Mr. McClendon's personal borrowing practices ignited a governance controversy last year. Shareholders soured on his spending amid the stock's recent disappointments, leading to his ouster. Some private-equity investors said the controversy might reduce the enthusiasm of some to work with the Chesapeake co-founder.

Still, Mr. McClendon is regarded by some as a visionary who helped lead a revolution in American energy extraction.

"I think he'll likely have several opportunities to partner with private-equity firms interested in energy," says Scott Sperling, co-president of Thomas H. Lee Partners. "After a few months out of the news, people probably will just remember that he was a guy who did some pretty interesting things" rather than someone who left his company amid negative headlines.

Any foray by Mr. McClendon into energy would be complicated by his contractual restrictions not to compete with Chesapeake.

Mr. McClendon's contract with Chesapeake bars him from using confidential information he acquired there for a year. It also prohibits him from acquiring, or helping someone else acquire, oil and gas interests immediately adjacent to the company's holdings while he continues to receive severance payments. Chesapeake has drilling rights to 15 million acres nationwide, spanning some of the country's most prolific oil-and-gas-producing zones, which could make it difficult for Mr. McClendon to operate in the same regions-even if he weren't directly involved.

"He can't do indirectly what he can't do directly," said Michael P. Maslanka, a partner at Dallas-based Constangy Brooks & Smith LLP who specializes in employment law. "You can wall him off, but the question becomes, 'How effectively did you wall him off?'"

Though Chesapeake said it would pay him a severance of nearly $50 million over four years, Mr. McClendon's next move will likely require other people's money. The executive once owned 33.5 million Chesapeake shares-worth $2.3 billion at their 2008 peak--and pledged them as collateral for loans to buy more shares. When Chesapeake's stock tumbled later that year, the value of his collateral fell below the level required and he was forced to sell most of his shares. Much of his personal fortune, including a 19.2% stake in the Oklahoma City Thunder basketball team, has been pledged as collateral to secure loans.

Through a controversial perk, Mr. McClendon can choose whether to invest in every well Chesapeake drills. The disclosure of his borrowing--he pledged his interests in the wells to secure up to $1.4 billion in loans from a private-equity group that also did business with Chesapeake--triggered shareholder lawsuits. The Securities and Exchange Commission is investigating the arrangement.

Chesapeake's board said in February it found no "intentional misconduct" by Mr. McClendon, who agreed to terminate the perk in June 2014.

T. Boone Pickens, whose own wrong-way bet on natural gas-prices in the 1990s led to his ouster at the energy company he had built, later went on to found a hedge fund. He says he recently met with Mr. McClendon, a fellow Oklahoma native, and that his friend's problem was having more ideas than money to finance them.

"He tried to buy the world," said Mr. Pickens, whose hedge fund sold all of its half-million Chesapeake shares last year.

Still, he said Mr. McClendon won't have any trouble raising money. "I'd invest with him," he said.


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