Certainly one of North America’s most aggressive activist buyers has set its sights on Suncor Vitality Inc., looking for an overhaul of the corporate’s board and administration crew, together with the potential sale of Petro-Canada.
In a letter to Suncor’s board on Thursday, U.S.-based Elliott Funding Administration expressed frustration in what it mentioned is a latest decline in efficiency on the vitality producer.
“It’s evident that Suncor’s established order shouldn’t be working,” Elliott accomplice John Pike and portfolio supervisor Mike Tomkins wrote of their letter.
“Shareholders have seen their funding lag behind almost all large-cap North American oil and fuel firms, as Suncor’s share worth has remained just about unchanged since early 2019, at the same time as oil costs have climbed to their highest degree in nearly a decade.”
Suncor, which was probably the most invaluable Canadian vitality firm by market capitalization from 2000 till 2018, has been in a droop lately. Elliott’s letter factors out the corporate’s share worth has lagged that of its closest oilsands peer, Canadian Pure Sources Ltd., by 137 per cent over the past three years.
The corporate has additionally been stricken by a latest spate of operational difficulties — lacking its company manufacturing steering as a result of gear failure and chilly climate— in addition to important office security considerations. Since 2014, there have been 12 office deaths at Suncor websites, which Elliott mentioned is greater than all the firm’s closest friends mixed.
Of their letter, Pike and Tomkins mentioned all of those issues have roots in what they referred to as Suncor’s “slow-moving, overly bureaucratic company tradition.”
Elliot Funding Administration is a widely known activist investor with roughly US$51.5 billion of property underneath administration. It has beforehand focused giant firms reminiscent of AT&T, Hyundai, and Softbank.
It holds a 3.4 per cent financial curiosity together with shares and cash-settled derivatives contracts within the Calgary-based firm.
In its letter, Elliott laid out its proposal for Suncor, which incorporates including 5 new unbiased administrators to the corporate’s board after which enterprise a strategic assessment of Suncor’s government administration crew, together with CEO Mark Little.
It additionally desires Suncor to discover alternatives to “unlock the worth” outdoors of its core oilsands enterprise. Prospects may embrace the potential sale or spinoff of Suncor’s Petro-Canada 1,800-location retail community.
Elliott may have carried out its analysis and clearly is aware of different Suncor buyers are additionally sad, mentioned Josh Younger, chief funding officer and founding father of Bison Investments, an oil and gas-focused funding agency based mostly in Houston, TX.
Younger identified that Suncor lower its dividend by over 50 per cent within the downturn of 2020, whereas Canadian Pure Sources Ltd. was capable of preserve its dividend in spite the market challenges.
“Even when Elliott does not personal numerous the inventory, they’ve most likely rightly recognized that numerous (Suncor’s) widespread shareholders can be curious about a change,” Younger mentioned.
Extra activist funding exercise in oil and fuel sector potential
Younger mentioned whereas activist buyers have traditionally not had numerous success focusing on oil and fuel firms, it is seemingly that a few of them are taking a contemporary take a look at the sector proper now given excessive oil costs and the trade’s constructive market fundamentals within the near-term.
“It is smart that activist buyers are getting the all-clear from the market to refocus and go after low-hanging fruit,” he mentioned. “And Suncor is a reasonably apparent one — you need to be an enormous fund to focus on them, but it surely’s a reasonably apparent goal.”
Younger added it would not be stunning to see extra activist funding exercise within the oil and fuel sector, now that the ice has been damaged.
“It appears extra doable, now that Elliott’s carried out it,” Younger mentioned.
Of their letter, Pike and Tomkins mentioned they stay up for partaking with the board, together with their fellow shareholders, and hoped to fulfill with the board as quickly as potential.
Suncor’s share worth was up $4.74, or 11.3 per cent, to $46.90 in mid-afternoon buying and selling Thursday on the Toronto Inventory Change.
Elliott mentioned it believes its proposal for Suncor may lead to a share worth of $60 or increased, a roughly 50 per cent enhance in shareholder worth.