In recent years, pressure from investors has instead targeted the environmental record of oil companies. The activist shareholding deployed by Elliott Management is nothing new, however, according to Patric Besner, lawyer and vice-president of the Institute on the governance of private and public organizations (IGOPP).
Typically hedge funds, hedge funds, have a very large concentration of funds in a few companies that are target companies for them. In Elliott’s case, Suncor’s 3.4% valuation is a lot of money
he explains. The fund is very concentrated and uses this as leverage to achieve short-term results.
The result thatElliott Managementt is trying to achieve was made clear in the letter sent to Suncor’s Board of Directors: improve shareholder return.
To do this, the fund proposes five changes including the appointment of directors chosen by Elliott and an assessment of Suncor’s assets, including Petro-Canada gas stations.
” These proposals give a kind of shock to the company to generate a lot of income and valuation in the very short term. »
Elliott, a feared expert
When it comes to activist ownership of this type, Elliott Management has created a solid reputation since its creation in 1977. Each time, the attack adopts the same weapons: a letter made public and a website presenting the arguments of the investment fund. In the case of Suncor, 45 pages of material gathering dozens of charts and data were put together.
Elliott Management investment fund founder Paul Singer has been described as Wall Street’s most feared investor by Forbes magazine.
Photo: Associated Press/John Minchillo
The method is proven, according to Saurin Patel, associate professor of finance at the Ivey School of Business. The fund has already done this in 2019 for the oil company Marathon, a case that the professor studied.
They do their homework and target companies that can be revamped
he observes.
Mr. Patel adds that this type of activism has been little seen in Canada because Canadian oil companies are generally well run. The very public method also has something to put off Canadian politeness.
Their methods are not the friendliest. Making all this information public is a bit like saying: look at how bad a job you are doing. This can be embarrassing for the management in place
notes Saurin Patel.
” It’s a question of casting doubt on other shareholders, of forcing them to wonder if they could make more money. »
Proven results
The financial director of the investment firm Bison Interests, Josh Young, however, believes that this kind of method is sometimes justified. He himself used it for a small Canadian oil company. When there are issues related to corporate culture, this can be the best solution. It requires external professionals to make changes
he points out.
Although the benefits are primarily economic, Josh Young adds that other benefits can come from a redesign. In his case, improving the profitability of the oil company allowed him to reduce his energy consumption and reduce greenhouse gas emissions.
Suncor’s president has himself acknowledged that his company needs to improve safety at its oil sands sites near Fort McMurray.
Photo: Reuters/Todd Korol
In the case of Suncor, Elliott Management linked the corporate culture to its poor safety record. Since 2014, there have been 12 fatal accidents at its operating sites.
Portfolio Manager and Vice President at Canoe Financial, Dave Szymbukaeven sees benefits beyond Suncor. Yes Elliott Management is interested in the oil company, it is because the investment fund considers the company undervalued.
Others will look at the value of assets, not just of Suncor, but of the whole industry
he believes.
” This is positive for the entire energy sector. »
The industry has complained for several years of having difficulty attracting capital, but Elliott’s activism could be a sign of a change in the making, adds Dave Szymbuka.
Suncor is valued as if nothing positive could happen. The whole industry in general is based on this idea that the price of oil is high, but for how long. But, there prices have been high for several months, activist ownership is showing up and people are starting to think that the price of oil is not going to go back to $50 a barrel.
he believes.
A risky method for the company
However, the whole company does not emerge as a winner from this kind of action, nuance Professor Saurin Patel. Some recommendations are tough on management and employees: layoffs, staff reductions… Elliott is known for its cost reduction strategies
he notes.
The vice-president of the IGOPP, Patric Besner, agrees. The interest of the activist shareholder is not that the company lasts indefinitely. It’s really to generate a return in the very very short term
he observes.
It brews the apple tree. […] This places the company, not in a mode of operation of society, but in a mode of counter-attack and management of this crisis. It’s very energy intensive.
Suncor’s general meeting takes place on Tuesday morning.
Reference-ici.radio-canada.ca