Wednesday, May 5, 2010

Carlyle Group Judged by its Associations

The Carlyle Group and its joint venture energy partner, Riverstone Holdings, invested $200 million in Enduro Resource Partners LLC. The press release described management for the start up:

Enduro's founders formerly led the executive team of Encore Acquisition Company ("Encore") from 1998 until 2010. Encore was acquired by Denbury Resources in March of 2010 for $4.5 billion.

That management team was sued over the deal by an investor.

According to the complaint Encore Acquisition Company directors violated their duties by “failing to maximize shareholder value,” and instead of getting the highest price, they “abdicated their duties in order to secure a deal that furthers their own interests,” including options and other benefits.

While the shareholder suit didn't stop the deal, one has to wonder why the buyer didn't include a non-compete clause for members of management. Encore's former executives are now competing for oil and gas properties under the Enduro brand.

It took two short months for these executives to profit handsomely, then start a new firm competing against their old one. The Carlyle Group appreciates such business acumen. They'd love an encore.