Activist investor Engine Capital LP urges the company to consider a sale or a spinoff of its noncore assets to become a more focused fuel and convenience retailer.
CALGARY, Alberta — Parkland Corp. is being urged by activist investor Engine Capital LP to consider a sale or a spinoff of its noncore assets to become a more focused fuel and convenience retailer.
"If the board is unwilling to optimize the business in the public market, we believe the board should consider a sale of the entire company to either private equity or strategic buyer," Engine Capital wrote in a letter to the company's board of directors on March 22.
Engine Capital, which owns approximately 2 percent of Parkland's outstanding shares, is a value-oriented special situations fund that invests both actively and passively in companies undergoing change.
According to the investor, since its creation, Parkland has pursued an aggressive merger-and-acquisition (M&A) strategy and, accordingly, gained significant scale and supply advantages. The company considers this vertically integrated supply strategy as one of its core competitive advantages. But, in doing so, Parkland has accumulated a range of assets that are not typically owned by pure-play and convenience operators.
"We believe these assets create significant complexity and detract from the company's underlying valuation leading investors to view Parkland as a conglomerate with disparate assets, instead of a pure-play convenience retailer," Engine Capital said, adding it was "particularly troubled by Parkland's staggering underperformance" compared with fellow Canadian convenience retailer Alimentation Couche-Tard Inc., operator of the global Circle K brand.
"We understand that M&A has historically made sense for the company in the context of increasing its supply advantage. At this stage of its evolution, however, Parkland has sufficient scale, which is why the board should now turn its focus to optimizing the company's structure, simplifying its business and becoming a best-in-class fuel and convenience retailer," the letter said.
Engine Capital suggests the board take the following actions in the near-term to enhance long-term shareholder value:
Immediately start exploring all strategic alternatives for Parkland, including evaluating the sale or spinoff of noncore assets with the goal of becoming a more focused fuel and convenience retailer.
Adhere to best corporate governance practices by refreshing the board and adding directors with convenience merchandising and capital allocation experience.
Improve the company's compensation framework to better align management's incentives with shareholder’s interests.
Parkland acknowledged receipt of the letter on March 22, saying the company actively communicates with all of its shareholders on an ongoing basis and will continue to do so.
"As previously announced, having purposefully accelerated acquisitions over the past two years, Parkland is focused on delivering value from the unique and integrated business it has built," Parkland said. "The company is focused on integrating its recent acquisitions, capturing synergies, lowering leverage and enhancing shareholder returns. The company is also examining opportunities for dispositions where it creates strong returns for the company's shareholders."
Parkland has retained Kingsdale Advisors as strategic shareholder advisor. Norton Rose Fulbright Canada LLP is acting as legal counsel and Teneo is acting as strategic communication advisor.
Parkland Deal Gives Largest Shareholder Say in Board Nominees
Engine Capital's letter came one day after Parkland entered into an agreement with its largest long-term shareholder, Simpson Oil Ltd. The deal gives Simpson Oil the right to designate up to two nominees for election to Parkland's board of directors, and includes customary voting support obligations in favor of the board.
Simpson Oil owns approximately 19 percent of the issued and outstanding shares of Parkland.
"We appreciate the confidence that Simpson Oil has shown in the Parkland team and the company's strategic direction. Since Simpson Oil became our largest shareholder, we have continued to advance our strategy and strengthen our growth platform through prudent acquisitions, while increasing our dividend each year," said Jim Pantelidis, chairman of the board of directors for Parkland.
"Through this agreement we have secured our largest shareholders' ongoing support for our board of directors and management. We look forward to our continued relationship with Simpson Oil, and our mutual confidence and commitment in the long-term strategy and future of our business," Pantelidis added.
Under the terms of the agreement, two nominees of Simpson Oil will be nominated for election at Parkland's upcoming annual and special meeting of shareholders.
"The board will be recommending shareholders vote in favor of the nominees' election at the upcoming shareholder meeting and we look forward to welcoming them to the board should they be elected," Pantelidis pointed out.
As part of the board's ongoing refreshment process, David Spencer and John Bechtold will not be standing for reelection at the meeting, a decision which has been planned for some time.
"I want to thank David and John for their service to the board and their tireless work on behalf of shareholders. Their vision, expertise and guidance have helped us navigate complex challenges and achieve remarkable success," the chairman said.
Calgary-based Parkland Corp. is an independent supplier and marketer of fuel and petroleum products, and a convenience store operator. Parkland operates approximately 4,000 retail and commercial locations, servicing customers across Canada, the United States, the Caribbean region and the Americas.