Open Letter To the Boards of Directors of Loews Corporation and Boardwalk Partners LP

May 8, 2018
Boards of Directors
Loews Corporation & Boardwalk Partners LP
667 Madison Avenue
New York, NY 10065

Dear Members of the Boards of Directors:
I write to express my outrage at the recent actions of the Loews Corporation, led by the members of the Tisch family who serve on its board, to artificially depress the stock price of Boardwalk Partners LP.  These efforts appear to be a brazen attempt to effect a buyout of the company for a fraction of its fair value and in contravention of terms and intent of the Master Limited Partnership agreement.  As one of Boardwalk’s largest minority unitholders, I am shocked and deeply disappointed at the manner in which Loews and its leadership are treating their fellow shareholders and limited partners, and I call upon them to immediately take action to rectify the situation they have created.

Nearly two months ago, on March 15, the Federal Energy Regulatory Commission issued a series of orders designed to address the allowance for income taxes in cost-of-service rates for natural gas and oil pipeline companies.  These orders are not expected to have any effect on Boardwalk’s existing business, and just four days after they were issued, Boardwalk publicly told unitholders “Boardwalk Does Not Expect FERC's Proposed Policy Revisions To Have A Material Impact On Revenues.” Neither Boardwalk nor Loews disclosed any basis to infer that the FERC orders may trigger a right allowing the General Partner to purchase all outstanding MLP units.

But on April 30, a month and a half after Boardwalk assured the market that the FERC orders would have no effect on its business, Loews abruptly announced that it thought the FERC orders would have a material adverse effect on its businessnot now, but five years from now, in 2023.  Loews further told investors that this revised outlook triggered a contractual right buried in the Boardwalk MLP agreement that allowed Loews CorporationBoardwalk’s majority unitholder and general partnerto buy the company’s minority shares for the average closing price of Boardwalk’s stock over the last 180 trading days.  Loews did not say whether it would actually exercise this rightrather, it said only that Loews was “strongly considering” the option and would make a decision by the end of 2018.

Instead of announcing a buyout, Lowes inserted the possibility of a future buyout as a means to cap the price at which the MLP units could trade, while giving Loews and its leadership an ongoing option to complete the buyout whenever the price of the MLP units declined to an acceptable level.  The reaction from the market was predictable:  in the week after the announcement, Boardwalk’s stock price plunged over 16% (falling from $11.04 to $9.26) as the fear of Loews exercising its call option at some uncertain date at some uncertain price led investors to scramble to get out of the stock.  Meanwhile, as minority unitholders suffer, the crisis that Loews has improperly manufactured has been working to its own benefit.  Every day that Boardwalk’s stock price falls, Loews’s option—which is based on the historical trading price—becomes cheaper to exercise.  By refusing to clarify its intentions, Loews has created a death spiral for Boardwalk’s stock.

The timing of Loews’s announcement is no coincidence.  Boardwalk’s stock has historically traded at over $38 per share, and was trading at over $18 per share in the last year.  Over the last several months, however, Boardwalk’s stock has hovered in the low teens at historic lows.  When Loews announced its position on the effect of FERC orders on April 30, it could have exercised its option to buy minority unitholders out for at a minimum $13.15 per share.

Boardwalk’s stock has been rapidly sinking, such that with each passing day minority unitholders will get less for their shares whenever the call option is ultimately exercised.  By artificially depressing Boardwalk’s stock price in this way, Loews is acting in clear contravention of the MLP agreement, which is designed to protect minority unitholders by ensuring that they receive an unaffected pricebased on the last 180 trading daysfor their units if the call option is exercised.  Loews cannot circumvent this contractual protection by threatening to exercise the option, artificially driving down the stock price, and using the manufactured decline in the stock price to exercise the call on the cheap. Loews’ conduct contravenes the parties’ manifested intent to provide unitholders a payment based on an unaffected price.  At a minimum, Boardwalk and Loews breached both the MLP agreement and the implied covenant of good faith and fair dealing.

I write to you today because there is still time for Loews and the members of the Tisch family who serve on its board to restore their reputations for fair dealing and avoid legal action.  If Loews believes that it has the right to exercise the call option in the MLP agreement, it should immediately commit to doing so at an unaffected price of at a minimum $13.15 per share.  If, however, Loews does not intend to exercise this right, it should promptly commit to not exercising this right in the future to remove the overhang that it has created in Boardwalk’s stock.  Alternatively, it should publicly commit to converting Boardwalk to a C-Corporation to offer certainty that the company is not affected by the FERC orders either now or in the future and to allow all unitholders to benefit from its future prospects.  It is my sincere hope that Loews and its leadership will commit to acting fairly and protecting the interests of all of Boardwalk’s unitholders

I request a response to this letter in the next five calendar days, and reserve all rights to take further action as needed. . In the event an amicable resolution is not feasible, I have retained Bernstein Litowitz Berger & Grossmann LLP as a precaution if needed to protect it’s clients interests. 

Tsachy Mishal
TAM Capital Management
63 Crane Rd North
Stamford, CT 06902
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Mark Lebovitch
Bernstein Litowitz & Grossmann LLP