I quit counting the number of class action lawsuits filed by various law firms after it reached eight.
In case MHR should eventually lose or offer a settlement, does anyone know how to estimate a reasonable number for what it might cost to settle? I should first state that I currently have a net loss of $32,000 over the last two years buying and selling MHR primarily due to a sale of 25,000 shrs for a $30,000 loss after the announcement of the PWC dismissal. My heart says walk away but my head still says GE is sincere about making the audit situation right so I believe the audit will get done. I wonder why there has been little
discussion on this board on how much these lawsuits might cost the company. Sure, I know some will say MHR might not have to pay anything. But the pessimist in me says the lawsuits are going to cost something. The MHR web site says 168.3 million shrs are outstanding. The closing price on 1/2/13 was $4.15 and the low for the day was $2.42/shr on 4/17/2013. Does one take 168.3 x ($4.15 - $2.42) = $291 million to settle the law suits as a ballpark estimate? That number seems high to me for a company as small as MHR. Anyways, I don't believe the entire $401M from Eagle Ford or the possible $200M for the pipeline will all go to reduce debt, fund drilling, etc. In the worst case, I think some of it goes to settle the law suits. So any thoughts on a reasonable number? I am currently holding 4,000 shrs and planning to accumulate more.
MHR was my single largest holding of retirement funds when I held 28,000 shrs and the loss wiped out all my retirement gains for the year. I sill believe MHR will eventually return long term value to shareholders. For now, my goal is just to recover some of my losses. I did some searching on lawsuits and reserves and found a 2007 case where SHELL admitted incorrectly calculating reserves and they setteled for about $350M in Europe and $80M in the U.S. I did not find how that number was reached.
05/06/2013 Buy 20,000 MHR MAGNUM HUNTER RESOURCES $2.90 -$58,008.95
Bought 20,000 shrs at open. Now holding 25000 shrs at avg cost of $2.975 along with a loss of around $32K. Can't wait until June and I promise to be quiet for a while.
Sentiment: Strong Buy
Thank you to everyone who shared their opinion in this thread. It is clear that I had no understanding of this issue. With your help, I learned a few things and perhaps other less astute investors like me did as well. IMO, GE has made some very good business decisions with MHR. I'm speaking of the Eagle Ford sale for example. I plan to reinvest on Monday. (Looks like I was wrong about my 25,000 sell, it was at $2.98, not $2.92.) Since I sold a lot of shares at $2.98, getting out and back in might be a wash for me although I did buy some shrs at prices lower than $2.98. Long term, I still believe MHR will create significant share value. I've concluded from reading this thread that the lawsuits are not likely to be as costly an issue as I originally feared. So I'm backing up my mouth with some action. In case anyone wants to call me a liar, here is a copy of my MHR transactions since 4/17/13. It does not really prove anything but I know the transactions
really did take place. Was it Warren Buffet that said, if you really want to make money in the stock market, you have to hold your nose and buy when others think the market stinks?
Date ACtion Quantity Symbol Description Price Amount Fees & Comm
05/03/2013 Buy 900 MHR MAGNUM HUNTER RESOURCES $2.848 -$2,572.15 $8.95
05/01/2013 Buy 400 MHR MAGNUM HUNTER RESOURCES $2.588 -$1,042.36 $7.16
05/01/2013 Buy 100 MHR MAGNUM HUNTER RESOURCES $2.585 -$260.29 $1.79
04/22/2013 Buy 600 MHR MAGNUM HUNTER RESOURCES $2.398 -$1,447.75 $8.95
04/19/2013 Buy 1,000 MHR MAGNUM HUNTER RESOURCES $2.689 -$2,697.95 $8.95
04/18/2013 Sell 1000 MHR MAGNUM HUNTER RESOURCES $2.872 $2,576.69 $8.95
04/17/2013 Sell 25,000 MHR MAGNUM HUNTER RESOURCES $2.98 $74,489.38 $10.62
Lawsuits will get combined into one class action lawsuit. It will drag on for years including appeals. After years there will be a small settlement including of course payment of the legal fees for the ambulance chasers. MHR will settle for a modest amount (maybe $20 mil) depending primarily on how much insurance they have. Most of the settlement will be covered by insurance. No one will care about the slow moving lawsuit 6 months from now.
You guys just don't get it. If the stock rebounds and the financials are reasonably close to what GE has stated all these guys move on to the next whiff of smoke. There is no class action to act on. IF GE were lying and pulling some type of scam "WHICH HE IS NOT" then they would indeed have a law suit.
These ambulance chasers as I have said multiple times sue as much and as fast as they can and if they can get 1 or 2% to actually have merit they make a few bucks. There are actually law firms that hunt down these so called share holder law suit firms and sue them for friviolous law suits.
This is a non issue.......
The worst cast in the lawsuits is obvious - The suits force MHR into BK . With the current liquidation values the preferred shareholders would be made whole and the common stock worth probably $1 or less.
Your analogy about Shell does not work because there Shell did the estimates itself. The question about a settlement is valid because if this mess went to a trial it would be at least 5 years and the attorneys would get all the $$. Me thinks your question is premature - First we will get the 10Q and 10K from BDO. If there are no material changes caused by MHR (remember they did not do the estimates but rather they were done with an independent evaluator) then the lawsuits would have no basis and be thrown out. There is probably a 50/50 chance of that happening. As to a settlement - got to remember the only winners are the lawyers as the company had to lie (and thus the share price not recover) in order for there to be damages. That said I would think for $25M the company would pay to have the suits go away. Most damage suits recover about 15-25% of damages and the shares are already back to the $2.70 area.
As to the $401M. Temporarily MHR has already said it would pay off its bank loan. With a capex budget of $300M it will need $$ beyond the EF money to pay for drilling this year and keep the bank balance at zero.
A question - unless you had a really huge retirement account why would you have more than 5% in any one company? 28K shares would have been worth about $200K and thus unless you had a retirement account of about $4M you were a bit careless particularly with a CEO like GE that is sometimes overly aggressive.
The lawsuit is NOT going to force MHR into BK, period. That is simply NOT a worst case scenario involving the lawsuit. Mhr may go into bankruptcy based on cash flow issues and inabilty to produce their way out of debt, but that will not be attributable to the lawsuit. Moreover, not a single person on this thread has commented on the E&O insurance the directors and officers have. The company will have a sizeable deductible, but the primary source of any settlement funds will be insurance. Lex.
Thank you for sharing your thoughts. Per your question on the 28,000 shrs, I was accumulating shares using dollar cost averaging and had an average share cost of around $4.16 and sold 25,000 shrs at $2.92 at the market open after the PWC announcement, so the loss was $31,000. The cost of the 28,000 shrs was $116,480. That represents about 10-11% of my portfolio. I invested that much because I believed in what MHR was doing and I believed in GE. I still do. The $32K is not my biggest single loss on a company and I have had a few large successes. I am willing to invest up to 10% of my portfolio in a single company if I strongly believe in them. I believe energy is undergoing a rebirth in America and I wanted to be part of the the growth and share in its success. Thanks again for your reply. It is helpful to hear that some folks believe the costs of the lawsuits will be manageable. And no, I am not a "boiler room clown" as posted by Fergadan below.