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 business—not 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 Corporation—Boardwalk’s majority unitholder and general partner—to
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 right—rather,
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 price—based
on the last 180 trading days—for 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.
Sincerely,
Tsachy Mishal
President
TAM Capital Management
63 Crane Rd North
Stamford, CT 06902
Press contact: tm@tamcm.com
Legal contact:
Mark Lebovitch
Bernstein Litowitz & Grossmann LLP
212-554-1519
