One of North America’s most aggressive activist investors has set its sights on Suncor Energy Inc. and is seeking an overhaul of the company’s board and management team, along with a possible sale of Petro-Canada.
In a letter to Suncor’s board Thursday, U.S.-based Elliott Investment Management expressed frustration at what it said is a recent decline in the energy producer’s performance.
“It is clear that Suncor’s status quo is not working,” John Pike, a partner at Elliott, and Mike Tomkins, a portfolio manager, wrote in their letter.
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“Shareholders have seen their investment lag behind nearly every large-cap oil and gas company in North America, as Suncor’s share price has remained virtually unchanged since the beginning of 2019, even as oil prices have risen to their highest level in nearly a decade.”
Suncor, which was the most valuable Canadian energy company by market capitalization from 2000 to 2018, has recently suffered a downturn. Elliott’s letter notes that the company’s share price has lagged its nearest oil sands peer, Canadian Natural Resources Ltd, by 137% over the past three years.
The company has also been affected by a number of recent operational difficulties, including failure to meet company production guidelines due to equipment failures and cold weather, as well as significant workplace safety issues. Since 2014, there have been 12 workplace fatalities at Suncor’s facilities, which Elliott says is more than the company’s closest peers combined.
In their letter, Pike and Tomkins said they looked forward to engaging with the board, along with their fellow shareholders, and hoped to meet with the board as soon as possible.
Elliot Investment Management is a well-known activist investor with some $51.5 billion in assets under management. In the past he has targeted large companies such as AT&T, Hyundai and Softbank.
He owns a 3.4% economic stake, including shares and cash-settled derivative contracts, in the Calgary-based company.
In his letter, Elliott outlined his proposal for Suncor, which includes adding five new independent directors to the company’s board and conducting a strategic review of Suncor’s executive management team, including CEO Mark Little.
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He also wants Suncor to explore opportunities to “unlock value” outside its core oil sands business. Possibilities could include the possible sale or spin-off of Suncor’s 1,800-store Petro-Canada retail network.
On Thursday afternoon, Suncor issued a statement saying it remains confident in the company’s strategy, but will take time to carefully evaluate Elliott’s proposals.
“Suncor’s board of directors and management team look forward to engaging in dialogue with Elliott in due course to better understand its perspective,” Suncor spokeswoman Sneh Seetal said in the statement.
News of Elliott’s move Thursday came as no surprise to Eric Nuttall, lead portfolio manager of the Ninepoint Energy Income Fund and a partner at Toronto-based Ninepoint Partners LP.
“There have been rumors in recent months that there might be an activist looking at the company, given how far it has lagged behind its peers,” Nuttall said in an interview.
However, Nuttall said the news is significant, not only because of Suncor’s history and “brand recognition,” but also because aggressive activist investor activity is rare in the Canadian oil and gas space.
“I don’t want to say that the way Elliott is doing it is wrong – it’s certainly shocking,” he said. “But it’s more Canadian to do it in a more childlike style.”
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Even in the U.S., activist investors have not historically had a great success rate when it comes to targeting oil and gas companies, said Josh Young, chief investment officer and founder of Bison Investments, an oil and gas-focused investment firm based in Houston, TX.
However, Young said some of them are likely taking a fresh look at the sector right now, given high oil prices and positive near-term industry market fundamentals.
“It makes sense for activist investors to get the go-ahead from the market to refocus and go for the low-hanging fruit,” he said. “And Suncor is a pretty obvious one – you have to be a big fund to target them, but it’s a pretty obvious target.”
Elliott will have done his research and clearly knows that there are other shareholders who share his belief that Suncor has lost its way, Young said.
He noted that Suncor cut its dividend by more than 50% in the 2020 recession, while Canadian Natural Resources Ltd. was able to maintain its dividend despite market challenges.
“Even if Elliott doesn’t own a large amount of shares, they have probably correctly identified that many of (Suncor’s) common shareholders would be interested in a change,” Young said.
Young added that it would not be surprising to see more activist investment activity in the oil and gas sector now that the ice has been broken.
“It seems more feasible, now that Elliott has done it,” Young said.
In their letter, Pike and Tomkins stated that they expect to engage with the board, along with their fellow shareholders, and that they hoped to meet with the board as soon as possible.
Suncor shares closed up $5.07, or 12%, to $47.22 on Thursday on the Toronto Stock Exchange.
Elliott said it believes its proposal for Suncor could result in a share price of $60 or more, an increase of about 50% in shareholder value.
2022 The Canadian Press
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