Shorts are good risk assessors. And they must be getting a bit nervous now.
"Icahn likely increased his position in Chesapeake because the company has valuable assets that the market gives little credit for. Because its stock price is so low, the Chesapeake shares trade for just 71% of their book value. The market also values Chesapeake at just $8-$9 per reserve BOE, a valuation below its competitors.
Given Icahn's activist reputation, Icahn could push Chesapeake management to pursue strategic alternatives to unlock that unrealized value if natural gas and crude prices do not rise. One strategic alternative would be to get a major Chinese energy company to invest alongside Chesapeake or to get the Chinese company to buy some of Chesapeake's assets like Sinopec did in 2013. Another strategic alternative would be to get Chesapeake to sell itself outright to a larger energy company."
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