A second large investor joined the call for Boardwalk Pipeline Partners LP sponsor Loews Corp. to make a decision soon to exercise its right to buy out Boardwalk's limited partners, accusing Loews of stalling after announcing a possible buyout to get unit holders to bail out and keep any buyout price low.

"Loews has an obligation to act in good faith in exercising that right," Bandera Partners LLC Managing Director Jeff Graham said in his May 21 letter to Loews' board. "Last week, we read the public letter from TAM Capital Management accusing Loews of a 'brazen attempt to effect a buyout of [Boardwalk] for a fraction of its fair value.'" Bandera, a value fund manager, owns a less-than-1% stake in Boardwalk, about 1.6 million units, all purchased in 2018.

"While we respect the need for Loews to carefully weigh its options ... Loews is not permitted to game the timing of the process in order to purchase units at a more favorable price for itself," Graham said.

Loews and Boardwalk suddenly announced on their April 30 earnings conference calls that a Federal Energy Regulatory Commission decision to disallow oil and gas master limited partnerships' use of an income tax allowance in setting rates would "materially decrease the maximum allowable rates Boardwalk could charge in the future," according to James Tisch, CEO of the cross-industry conglomerate Loews.

A month and a half previously, Boardwalk reassured investors that the tax exclusion would not have a material impact on revenues because most of the rates on Texas Gas Transmission LLC and Gulf Crossing Pipeline Co. pipelines are negotiated and not subject to FERC review.

Loews' about-face underscored the "limited" part of being a limited partner in an MLP, analysts said. "Tough pill to swallow for us and very disappointing, as we viewed [Boardwalk] as one of the largest value disconnects in the midstream space and fundamentally saw lots of value in the asset," U.S. Capital Advisors LLC midstream analyst Becca Followill said the day after the call. "Unfortunately, yesterday morning's events served as a harsh reminder of the structural subordination of MLPs."

Barclays midstream analyst Christine Cho said she told her clients May 10, "While [Boardwalk] appears to be the only LP currently at risk from limited call rights, the issue highlights the relatively poor corporate governance in the sector."

The announcement had unit holders jumping out of the stock due to the sudden uncertainty injected into the equity, according to TAM's shareholder letter. "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," TAM said in its May 8 letter to the board. "Meanwhile, as minority unitholders suffer, the crisis that Loews has improperly manufactured has been working to its own benefit."

U.S. Capital cuts its price target on Boardwalk to $11 per unit from $20, saying $11 is where the announcement drove unit prices. U.S Capital expects the price to stay there for the 180 days to set a buyout price under the partnership agreement. Loews says it has until the end of 2018 to make any decision.

Both Bandera and TAM said a fair price is in the neighborhood of $13.14, the 180-day average price before the April 30 announcement. "While $13.14 is substantially higher than the units' current trading price, we believe this values Boardwalk at far less than it is actually worth," Bandera's Graham said.

Boardwalk units closed May 18 at $10.75.

"If Loews does exercise its option, we think that, at a minimum, it must do so only at a fair price and in accordance with straightforward procedures that accord with unitholders' reasonable expectations of fairness," Bandera's letter said. "Any effort to evade these requirements would not only fail, it would forever damage the sterling reputation that Loews has built over many decades."

While Loews has reiterated that the existence of the call option has been included in years of Boardwalk's quarterly and annual reports, Bandera's Graham scoffed that the disclosure was meaningless since it left out key details. "The actual disclosure was grossly inadequate. Boardwalk's Form 10-Ks informed unitholders only that an option existed, not that the option would permit Loews to buy the units at a price far below their intrinsic value and far below recent trading prices."

"I'm not sure shaming works in a situation like this," Graham said in a later interview. After all, Loews' board has a duty to get the best price for its shareholders, he said.

Loews did not immediately respond to a request for comment.