Activist investor Carl Icahn has forced Transocean (NYSE:RIG) to add a special dividend proposal of $4 and three of his choices for board of directors to its annual proxy. As everyone knows, Transocean was involved in the explosion in the Gulf of Mexico with BP (NYSE:BP). A recent article on Seeking Alpha does a good job explaining the situation and enumerates the merits of investing in Transocean. As a shareholder, let me tell you why I'm voting for this measure.
Transocean started out as a spinoff like so many other companies in the energy space. Over time, it merged with other drillers like GlobalSanteFe and eventually took its current name from a Norwegian driller that it acquired. Transocean enjoyed the energy boom of the 50s, 60s, and 70s and also enjoyed the favorable U.S. business environment.
In 2008, management moved its headquarters to Switzerland and cut its corporate tax rate from 35% to 16%. Not only did Transocean cut its taxes, these taxes don't go to the U.S., they go to Switzerland. The problem is that our country needs those taxes to pay off our $16 trillion debt! The Swiss don't need these taxes!
There is no reason to go into the Macondo blowout because everyone is familiar with this situation but this is a second reason to punish management. You don't get to be complicit in an accident of this size and get to have your way.
Activist investors do sometimes make silly recommendations like M&As that make no sense. Carl Icahn is no different. But sometimes they make brilliant moves like doing away with poison pills and golden parachutes. If shareholders don't watch management, management will run roughshod over them. Just look at the $200 million payday that Bill Johnson of Heinz (NYSE:HNZ) will get someday after the Berkshire Hathaway (BRK-A, BRK-B) buyout!
The Annual Meeting is May 17, in Switzerland. Transocean is recommending a slate of its own directors and a $2.24 special dividend. In addition to Icahn's two proposals listed, an MLP structure is also mentioned in its 13-D filing with the SEC. A 13-D is a filing when a shareholder that owns more than 5% of the outstanding stock seeks to engage management in changes. Icahn's funds cumulatively hold almost 6%. Proxies are due to be mailed back before the Annual Meeting.