CALGARY — One of North America’s most aggressive activist investors has set its sights on Suncor Energy Inc., seeking an overhaul of the company’s board of directors and management team, as well as the sale possible from Petro-Canada.
In a letter to Suncor’s board on Thursday, U.S. firm Elliott Investment Management expressed frustration with what it calls a recent downturn in the energy producer’s performance.
“It’s clear Suncor’s status quo isn’t working,” Elliott partner John Pike and portfolio manager Mike Tomkins wrote in their letter.
“Shareholders have seen their investment lag behind nearly all large-cap North American oil and gas companies, as Suncor’s share price has been virtually unchanged since the start of 2019, even as Oil prices hit their highest level in almost a decade.
Suncor, which was the most valuable Canadian energy company by market capitalization from 2000 to 2018, recently suffered a crisis. Elliott’s letter points out that the company’s share price has lagged its closest oil sands counterpart, Canadian Natural Resources Ltd., by 137% over the past three years.
The company has also been plagued by a recent series of operational difficulties – missing its corporate production guidelines due to equipment breakdown and cold weather – as well as significant workplace safety issues. Since 2014, there have been 12 workplace fatalities at Suncor sites, which Elliott says is more than all of the company’s closest peers combined.
In their letter, Pike and Tomkins said all of these problems had their roots in what they called Suncor’s “slow and overly bureaucratic corporate culture.”
Elliot Investment Management is a well-known activist investor with approximately $51.5 billion in assets under management. It previously targeted big companies such as AT&T, Hyundai and Softbank.
She has a 3.4% economic stake, including equity and cash-settled derivative contracts, in the Calgary-based company.
In the letter, Elliott outlined its proposal for Suncor, which includes adding five new independent directors to the company’s board, then conducting a strategic review of Suncor’s management team, including CEO Mark Little.
He also wants Suncor to explore opportunities to “unleash value” outside of its core oil sands business. Opportunities could include the potential sale or spin-off of Petro-Canada’s 1,800-location retail network from Suncor.
On Thursday afternoon, Suncor issued a statement in which it said it remained confident in the company’s strategy, but would take the time to carefully evaluate Elliott’s proposals.
“Suncor’s Board of Directors and management team look forward to engaging with Elliott in due course to better understand their perspective,” Suncor spokeswoman Sneh Seetal said in the statement.
News of Elliott’s decision on Thursday came as no surprise Eric Nuttall, lead portfolio manager of the Ninepoint Energy Income Fund and partner at Toronto-based Ninepoint Partners LP.
“There have been rumors over the past few months that there may be an activist watching the company, given how far behind it is compared to its peers,” Nuttall said in an interview.
Still, Nuttall said the news is significant, not just because of Suncor’s history and “brand recognition,” but also because aggressive activist investor activity is rare in the oil and gas space. Canadian gas company.
“Not to say that the way Elliott does it is bad – it’s certainly impactful,” he said. “But it’s more Canadian to do it in a more childlike style.”
Even in the United States, activist investors have never 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 investment company. oil and gas-focused investment based in Houston, TX.
However, Young said it’s likely some of them will take a fresh look at the sector right now, given high oil prices and positive near-term market fundamentals.
“It makes sense that activist investors are getting the green light from the market to refocus and seek 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 there are other shareholders who share his belief that Suncor has gone astray, Young said.
He pointed out that Suncor cut its dividend by more than 50% during the 2020 downturn, while Canadian Natural Resources Ltd. was able to maintain its dividend despite market difficulties.
“Even if Elliott doesn’t own a large portion of the stock, they probably correctly identified that many common shareholders (of Suncor) 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 doable, now that Elliott has done it,” Young said.
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.
Suncor’s stock price closed up $5.07, or 12%, at $47.22 on Thursday on the Toronto Stock Exchange.
Elliott said he believes his proposal for Suncor could result in a stock price of $60 or more, or about a 50% increase in shareholder value.
This report from The Canadian Press was first published on April 28, 2022.
Companies in this story: (TSX: SU)