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 and management team, as well as the possible sale of Petro Canada.
In a letter to Suncor’s board on Thursday, US-based Elliott Investment Management expressed frustration with what it said was the energy producer’s recent downturn.
“It’s clear Suncor’s status quo is not 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 flat 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.
Elliott will have done his research and knows clearly that other Suncor investors are also unhappy, said Josh Young, chief investment officer and founder of Bison Investments, a Houston-based oil and gas-focused investment firm, at the Texas.
Young 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 challenges.
“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.
More activist investment activity in the oil and gas sector possible
Young said while activist investors have never had much success targeting oil and gas companies, it’s likely some of them are taking a fresh look at the sector right now given high oil prices. and positive short-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.”
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, as well as fellow shareholders, and hoped to meet with the board as soon as possible.
Suncor’s stock price rose $4.74, or 11.3%, to $46.90 by mid-afternoon 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.