Bill Koch Forced To Sell Oxbow Carbon and The Story Behind It

I have been following Bill Koch for a number of years on my blog. My last post regarding him discussed if he was getting forced out of the company he founded and if was running out of money and selling assets to finance his lifestyle. It appears Bill Koch is now being forced to sell his company (that he created after he left Koch Industries and then filed a lawsuit against Charles and David Koch).

Recently, 178 page court decision from Delaware Chancery Court judge Travis Laster ruled that Bill Koch couldn't block Crestview Partners (a private equity firm) from cashing out its investment in Oxbow Carbon. This decision could put the Oxbow Carbon into a receiver supervised sale.

Originally on May 1, 2007 Oxbow executed a deal that would allow Crestview to have a 23% equity interest in Oxbow for $190 million. Oxbow contributed $483 million which represented a 59% interest. In addition to this Bill Koch's family made contributions too. The Wyatt I. Koch 2000 Trust, the William I. Koch Family Trust (created in 1976 to benefit his daughter Charlotte Koch-who is now in her early 20's), even Koch's ex wife Joan Granlund contribute (he at one point in his past tried to juggle three different women at once). Oxbow along with the Koch family owned 67% of equity in the transaction.The Operating Agreement of Oxbow allowed all Koch members to have participation rights with the issuance of new equity. Below is a table that explains the ownership

In January 2011 when Oxbow would acquire a sulfur company the board would approve offering equity to the Koch family and sulfur executives at $300/share (this would represent only a 1.4% interest in Oxbow). Barry Volpert of Crestview would testify that Oxbow didn't need to issue equity to raise capital and didn't help Oxbow to do anything.

The deal would allow Crestview a "put option" to repurchase the remaining shares at fair market market value. This would allow Crestview to sell its shares back to Oxbow. If however, Oxbow declined to purchase the shares then Crestview had the right to have an exit sale of Oxbow. Crestview believed they could sell shares for $283-$452/share in an exit sale and estimated the company would earn $566 million EBITDA (earnings before income taxes and depreciation). Morgan Stanley believed that Oxbow could perform an IPO for $400/share and ultimately trade for $500/share. Oxbow was a pretty successful company earning $571 million in 2011. However, Koch in this video would say that in 2013 his profits were down 40%.

By 2013 Oxbow employee Brian Bilnoski noted that if Oxbow couldn't buyout minority shareholders with debt Oxbow would be at the mercy of the minority shareholders in terms of timing. At the time Bilnoski believed the shares were worth $217/share. In 2014 Koch tried to find new capital to redeem Crestview's interest. Koch had trusted Christine Wing O'Donnell for this task of finding new capital. She is a graduate of Southern Methodist University and Harvard Business School personally worked at a family office for Bill Koch that consisted of over 60 full time employees. O'Donnell would set the strategy for estate planning, investment management, and charitable giving. She would manage the investments, monitor private trust, create family limited partnerships, and would help create a private trust company. Koch even gave Christine full authority to use his private plane-which other Oxbow executives frowned upon.

In 2014 Steve Fried left Oxbow as Chief Operating Officer and Koch replaced the position with Eric Johnson (who at the time was also on the verge of resigning. Eric Johnson  would then be promoted to President (he started the position in 2015-after having been with the company for 11 years) of Oxbow Carbon and actually worked at Koch Industries from 1990-1998. Actually Johnson liked Crestview and even had a "man crush on the Crestview guys". O'Donnell and Eric Johnson along with Crestview Partners didn't believe Bill Koch was the best person to run Oxbow. Bill Koch who has been through many court battles in his time would use surveillance in his own home and within his Oxbow office to capture evidence on Oxbow executives and Crestview Partners. Koch even hired a former FBI agent to engage in private investigation.

By March 2015 Eric Johnson told Crestview Partners that he believed that $18 million could be cut in annual expenses from Oxbow. The cut in expenses would come from cutting back the reimbursements the company was providing to fund Bill Koch's lifestyle. Koch would have Oxbow reimburse him for his $5.3 Dassault Falcon private jet, private school tuition (Oxbridge Academy-a school he founded), entertainment, wine, liquor, even payments to relatives, former employees, and business associates. Most corporations don't allow this as they don't want to allow company funds to be commingled with personal funds.

Realizing that he needed capital to fend off a possible put option or forced sale Koch then wanted O'Donnell to raise capital (but not talk to Crestview). O'Donnell went behind Koch's back and e-mailed, texted, and called Crestview and did not inform Koch on what she was doing. O'Donnell and Johnson would talk to other firms and would tell firms that Koch was willing to transition his role of CEO to Johnson (which he wasn't) and sell equity to give up control (which he wasn't). O'Donnell didn't believe Koch was the best pitch person and felt that bringing him to possible investor meetings would make investors loose enthusiasm. As O'Donnell ran Koch's family office she even offered to have Quenntin Chu personal expenses for Koch. Chu who holds a CFA (Chartered Financial Analyst) designation and became a partner at Crestview in 2012 after starting at the firm in 2005 and graduated from Harvard Business School. Koch picked up that a coup within his own company and by June 2015 told Christina O'Donnell and Eric Johnson they were no longer involved (more on both of their futures at Oxbow later).  By this point Koch was trying to prevent Crestview from exercising their put option. Morgan Stanley recommend that Oxbow in July 2015 would need to raise money immediately and that a if Crestview exercised the put option it would impact the marketability of the shares which would lead to a fire sale of Oxbow Carbon.  During this time Koch would engage in multiple amendments to try to prolong and stall Crestview from exercising their put option.

Well on September 28, 2015 Crestview went ahead and pulled the trigger on their put option and wanted Oxbow to purchase their shares. The appraised value of the shares were only $256.56/share Koch would then hire Goldman (which is interest on many levels because they were brought in for valuations during the Koch vs. Koch trial and they were also the same company that many Crestview partners would come from). Advisors to Koch said he could avoid the put option by taking Oxbow public (brother Charles Koch said Koch Industries would go public literally over his dead body) or merging with another large public company. Also Koch advisors told him the shares were only worth $145/share. Because there was such a difference between Crestview and Oxbow regarding the valuations the agreements stipulated that a third party would have to come in to evaluate the fair market value.

By January 14, 2016 Moelis believed that Oxbow had an enterprise value of $2.65 billion which would  be equal to $169/share. A day after this valuation was determined the Oxbow board would meet to discuss their options. Koch wanted to sue or devise a legal strategy to avoid the forced sale. A day after the Oxbow board meeting Crestview went for the whole enchilada by exercising the exit right sale. By this time Christina O'Donnell also was getting fed up with Koch and even sent an e-mail to Eric Johnson stating they should "take his company from him quickly, not a day of relief, put him through the hell he put [them] through, let's find the $30 million of cost savings if he's not running it..."Let's take his plane, his job, and when it's over drink his wine before you taking me dancing". At this point Johnson and O'Donnell would try to ambush Koch and worked with Crestview to do so. O'Donnell would meet with other companies and even provided signed confidentiality agreements to Crestview. Well Koch would then learn of these tactics and fired O'Donnell in February 2016 and remove her from the Oxbow board. Koch also fired Oxbow's general counsel Michael McAuliffe as well.  Crestview then came up with a value of Oxbow of $2.4 billion and worked with another firm (ArcLight) to purchase 100% of Oxbow's equity for $176/share with the offering expiring on March 22, 2016.

In April 6, 2015 Oxbow met with Goldman Sachs and the Oxbow board authorized Goldman to proceed with the broad sales process. Koch would attempt to micromanage Goldman and his own Oxbow executives by not allowing them to talk to any potential investors or provide them with any information (including most importantly gossip). Goldman Sachs would say that it was the "most constrained" process they would ever encounter in their long history. Crestview managing director Robert Hurst would say that Koch was paranoid regarding the control of Oxbow. Koch would then tell Oxbow executives to provide a dim future outlook for Oxbow when talking to potential buyers. He even instructed the CFO to tell Oxbow executives to tell certain executives to dampen their forecasts or they would possibly loose their bonuses (at most companies Bill Koch would be fired for ordering this). By June 2016 Koch would fire Eric Johnson just before a board meeting. The best part of the meeting was when Koch told his attorneys to file lawsuits against Crestview and another shareholder (while the meeting was in progress). Potential buyer ArcLight said with an impending lawsuit they would not buy in.

In February 18, 2018 decision from judge Travis Laster approved the possibility of an exit sale of Oxbow. This could leave Oxbow in a position where a receiver is appointed to oversee the process between the two parties. Laster pointed out that Oxbow had taken advantage of unfair gaps and didn't follow certain procedures for covering lapses in the agreements signed. Back in November 2017 Judge Laster even said "Is this likely to end anytime soon?"

On April 10, 2018 the board of directors for Oxbow Carbon LLC proposed a board managed sale for $2.6 billion to comply with the court order to comply with cashing out Crestview Partners and Load Line Capital. This valuation was within the realm of what Crestview and Moleis had came up with when they were evaluating the market value of the company. The next question is what will Bill Koch do after he sells the company that he created? Will he set off into the sunset and work on creating his wild west town? Will he spend more time collecting art and wine? Also questions like how will Bill Koch get health insurance since he probably was covered on a company plan. Perhaps Koch Industries has an opening for him (just kidding).

Oxbow Carbon vs. Crestview Partners LP and The Oxbow Bill Koch Corporate Coup

I have been following Bill Koch for a number of years on my blog. My last post regarding him discussed if he was getting forced out of the company he founded and if was running out of money and selling assets to finance his lifestyle. It appears Bill Koch is one step closer to being forced to sell Oxbow Carbon.

Most recently in a 178 page court decision from Delaware Chancery Court judge Travis Laster ruled that Bill Koch couldn't block Crestview Partners (a private equity firm) from cashing out its investment in Oxbow Carbon. This decision could put the Oxbow Carbon into a receiver supervised sale.

Originally on May 1, 2007 Oxbow executed a deal that would allow Crestview to have a 23% equity interest in Oxbow for $190 million. Oxbow contributed $483 million which represented a 59% interest. In addition to this Bill Koch's family made contributions too. The Wyatt I. Koch 2000 Trust, the William I. Koch Family Trust (created in 1976 to benefit his daughter Charlotte Koch-who is now in her early 20's), even Koch's ex wife Joan Granlund contribute (he at one point in his past tried to juggle three different women at once). Oxbow along with the Koch family owned 67% of equity in the transaction.The Operating Agreement of Oxbow allowed all Koch members to have participation rights with the issuance of new equity. Below is a table that explains the ownership

In January 2011 when Oxbow would acquire a sulfur company the board would approve offering equity to the Koch family and sulfur executives at $300/share (this would represent only a 1.4% interest in Oxbow). Barry Volpert of Crestview would testify that Oxbow didn't need to issue equity to raise capital and didn't help Oxbow to do anything.

The deal would allow Crestview a "put option" to repurchase the remaining shares at fair market market value. This would allow Crestview to sell its shares back to Oxbow. If however, Oxbow declined to purchase the shares then Crestview had the right to have an exit sale of Oxbow. Crestview believed they could sell shares for $283-$452/share in an exit sale and estimated the company would earn $566 million EBITDA (earnings before income taxes and depreciation). Morgan Stanley believed that Oxbow could perform an IPO for $400/share and ultimately trade for $500/share. Oxbow was a pretty successful company earning $571 million in 2011. However, Koch in this video would say that in 2013 his profits were down 40%.

By 2013 Oxbow employee Brian Bilnoski noted that if Oxbow couldn't buyout minority shareholders with debt Oxbow would be at the mercy of the minority shareholders in terms of timing. At the time Bilnoski believed the shares were worth $217/share. In 2014 Koch tried to find new capital to redeem Crestview's interest. Koch had trusted Christine Wing O'Donnell for this task of finding new capital. She is a graduate of Southern Methodist University and Harvard Business School personally worked at a family office for Bill Koch that consisted of over 60 full time employees. O'Donnell would set the strategy for estate planning, investment management, and charitable giving. She would manage the investments, monitor private trust, create family limited partnerships, and would help create a private trust company. Koch even gave Christine full authority to use his private plane-which other Oxbow executives frowned upon.

In 2014 Steve Fried left Oxbow as Chief Operating Officer and Koch replaced the position with Eric Johnson (who at the time was also on the verge of resigning. Eric Johnson  would then be promoted to President (he started the position in 2015-after having been with the company for 11 years) of Oxbow Carbon and actually worked at Koch Industries from 1990-1998. Actually Johnson liked Crestview and even had a "man crush on the Crestview guys". O'Donnell and Eric Johnson along with Crestview Partners didn't believe Bill Koch was the best person to run Oxbow. Bill Koch who has been through many court battles in his time would use surveillance in his own home and within his Oxbow office to capture evidence on Oxbow executives and Crestview Partners. Koch even hired a former FBI agent to engage in private investigation.

By March 2015 Eric Johnson told Crestview Partners that he believed that $18 million could be cut in annual expenses from Oxbow. The cut in expenses would come from cutting back the reimbursements the company was providing to fund Bill Koch's lifestyle. Koch would have Oxbow reimburse him for his $5.3 Dassault Falcon private jet, private school tuition (Oxbridge Academy-a school he founded), entertainment, wine, liquor, even payments to relatives, former employees, and business associates. Most corporations don't allow this as they don't want to allow company funds to commingle with personal funds.

Realizing that he needed capital to fend off a possible put option or forced sale Koch then wanted O'Donnell to raise capital (but not talk to Crestview). O'Donnell went behind Koch's back and e-mailed, texted, and called Crestview and did not inform Koch on what she was doing. O'Donnell and Johnson would talk to other firms and would tell firms that Koch was willing to transition his role of CEO to Johnson (which he wasn't) and sell equity to give up control (which he wasn't). O'Donnell didn't believe Koch was the best pitch person and felt that bringing him to possible investor meetings would make investors loose enthusiasm. As O'Donnell ran Koch's family office she even offered to have Quenntin Chu personal expenses for Koch. Chu who holds a CFA (Chartered Financial Analyst) designation became a partner at Crestview in 2012 after starting at the firm in 2005 and graduated from Harvard Business School. Koch picked up that a coup within his own company and by June 2015 told Christina O'Donnell and Eric Johnson they were no longer involved (more on both of their futures at Oxbow later).  By this point Koch was trying to prevent Crestview from exercising their put option. Morgan Stanley recommend that Oxbow in July 2015 would need to raise money immediately and that a if Crestview exercised the put option it would impact the marketability of the shares which would lead to a fire sale of Oxbow Carbon.  During this time Koch would engage in multiple amendments to try to prolong and stall Crestview from exercising their put option.

Well on September 28, 2015 Crestview went ahead and pulled the trigger on their put option and wanted Oxbow to purchase their shares. The appraised value of the shares were only $256.56/share Koch would then hire Goldman (which is interest on many levels because they were brought in for valuations during the Koch vs. Koch trial and they were also the same company that many Crestview partners would come from). Advisors to Koch said he could avoid the put option by taking Oxbow public (brother Charles Koch said Koch Industries would go public literally over his dead body) or merging with another large public company. Also Koch advisors told him the shares were only worth $145/share. Because there was such a difference between Crestview and Oxbow regarding the valuations the agreements stipulated that a third party would have to come in to evaluate the fair market value.

By January 14, 2016 Moelis believed that Oxbow had an enterprise value of $2.65 million which would  be equal to $169/share. A day after this valuation was determined the Oxbow board would meet to discuss their options. Koch wanted to sue or devise a legal strategy to avoid the forced sale. A day after the Oxbow board meeting Crestview went for the whole enchilada by exercising the exit right sale. By this time Christina O'Donnell also was getting fed up with Koch and even sent an e-mail to Eric Johnson stating they should "take his company from him quickly, not a day of relief, put him through the hell he put [them] through, let's find the $30 million of cost savings if he's not running it..."Let's take his plane, his job, and when it's over drink his wine before you taking me dancing". At this point Johnson and O'Donnell would try to ambush Koch and worked with Crestview to do so. O'Donnell would meet with other companies and even provided signed confidentiality agreements to Crestview. Well Koch would then learn of these tactics and fired O'Donnell in February 2016 and remove her from the Oxbow board. Koch also fired Oxbow's general counsel Michael McAuliffe as well.  Crestview then came up with a value of Oxbow of $2.4 billion and worked with another firm (ArcLight) to purchase 100% of Oxbow's equity for $176/share with the offering expiring on March 22, 2016.

In April 6, 2015 Oxbow met with Goldman Sachs and the Oxbow board authorized Goldman to proceed with the broad sales process. Koch would attempt to micromanage Goldman and his own Oxbow executives by not allowing them to talk to any potential investors or provide them with any information (including most importantly gossip). Goldman Sachs would say that it was the "most constrained" process they would ever encounter. Crestview managing director Robert Hurst would say that Koch was paranoid regarding the control of Oxbow. Koch would then tell Oxbow executives to provide a dim future outlook for Oxbow when talking to potential buyers. He even instructed the CFO to tell Oxbow executives to tell certain executives to dampen their forecasts or they would possibly loose their bonuses (at most companies Koch would be fired for ordering this). By June 2016 Koch would fire Eric Johnson just before a board meeting. The best part of the meeting was when Koch told his attorneys to file lawsuits against Crestview and another shareholder (while the meeting was in progress). Potential buyer ArcLight said with an impending lawsuit they would not buy in.

The recent February 18, 2018 decision from judge Travis Laster approved the possibility of an exit sale of Oxbow. This could leave Oxbow in a position where a receiver is appointed to oversee the process between the two parties. Laster pointed out that Oxbow had taken advantage of unfair gaps and didn't follow certain procedures for covering lapses in the agreements signed. Back in November 2017 Laster said "Is this likely to end anytime soon?" The next step is to allow both parties until the mid March 2018 to allow the parties involved to submit a joint letter to inform the court of any other matters that need to be addressed to bring the case to a close.

I plan to update this post for future developments.

Bill Koch Holds Kirby Martensen (Oxbow Employee) Captive?

Today, I just learned of this bizarre news story from Oxbow Energy (especially for a Friday afternoon). Oxbow says it began a year long initiation beginning in March of 2011 to investigate whether a certain executive was trying to defraud the company of $40 million. Oxbow claimed an employee named Kirby Martensen was getting kick backs.  Martensen who worked for Oxbow Corporation for 16 years relieved millions in compensation and bonuses. As you may know I have covered Bill Koch in numerous places in his profile here, his school days, and the $1.3 billion family lawsuit with Charles and David Koch.

In this news story it is alleged that Kirby Martensen who was an executive for Oxbow Energy was held captive by Bill Koch. Martensen was promoted to be the senior vice president of Asia. Interestingly more than 75% of Oxbow's fuel grade petroleum exports profits come from just the Asia operations. Martensen is claiming that Oxbow was trying to relocate part of the company in order to evade $200 million in taxes.What is interesting however and maybe something Bill Koch can use in his defense is the fact that Martensen himself was alleged to self dealing, stealing, and breaching a fiduciary duty. Koch did a review of thousands and found Martensen was worried about if Oxbow was actually doing things that were legal.

Martensen claims that Koch tried to discredit him and used "false pretenses". The story gets a little stranger when Koch drove Martensen to Bear Ranch for the night and had breakfast the following morning. Koch showed Martensen around his private city. Martensen was then interviewed for his peer review and which lasted several hours and seems was a meeting to tell him he was going to be terminated. After this he was escorted to pack up his stuff and a sheriff wasthere to escort him out. After this the story gets bizarre as Martensen claims he was kidnapped and taken to the Denver airport for a 2 in the morning flight on March 23, 2012 on a private plan that went from Denver to Oakland, California. Martensen then basically left refusing to go to the Marriot Courtyard Hotel. In this whole process Martensen claims he suffered from anxiety, fear, humiliation, and distress.The official charges are false imprisonment and civil conspiracy. Martensen has already hired John Houston Scott (because three names just makes you sound smart) from San Francisco to defend him.

Bill Koch has a history of losing court cases. He lost the $1.3 billion case against his brothers. He lost the case against the wine he claimed was counterfeit wine. Last year he was in a lawsuit for real estate having to do with his private school. I haven't even touched the numerous lawsuits he has got into with his love life. In general Koch is on the wrong side of the lawsuit however the accusations made seem like something out of a John Grisham novel and the truth remains to be seen. A book could probably just be written on Bill Koch's court decisions. No question though Bill Koch is an interesting man and which is why I continue to blog about him.