Shareholder Urges Parkland to Make Value-Enhancing Changes

CALGARY, Alberta — Activist investor Engine Capital LP renewed its call for change at Parkland Corp. through a Sept. 26 letter it sent to the company's board of directors.

In the letter, the investor outlined several financial changes it believes the board should make and urged Parkland to focus on simplifying the business.

The shareholder, which owns around 2.5 percent of Parkland's outstanding shares, previously announced it would withhold support on all incumbent directors at Parkland's annual meeting in spring 2023, as Convenience Store News previously reported.

[Read more: Parkland Grows Momentum During Q2 2023]

In the letter, Engine Capital requested that the board of directors communicate Parkland's long-term cash flow opportunity and develop and communicate a precise, long-term capital allocation framework.

"Given the exceptional free cash flow generation of Parkland's business, we believe the board needs to be explicit and precise with its capital allocation framework," the shareholder wrote. "This clarity will give the market a better understanding of the board's approach to capital management and should result in enhanced credibility and valuation of the business."

It also asked the board to further refine Parkland's compensation framework to better align management incentives with shareholders' interests, noting that the current compensation structure is "fundamentally flawed and has the potential to incentivize bad behavior," and announce an additional $100 million of cost savings by 2025 and commit to higher ROIC target.

Finally, the letter urged Parkland's board to continue to focus on simplifying the business and divesting noncore assets. It cited the company's heating oil business as an example of one that should be sold because it does not seem core to Parkland as it does not reinforce the core business.

[Read more: Parkland Plans to Build on Loyalty]

In addition to these recommendations, the shareholder commended the board for other steps it has taken over the past few months that it believes have begun to unlock shareholder value. These include:

• Refreshing the board by adding two shareholder representatives and facilitating the departure of the three longest-tenured directors;
• Simplifying the business with the announcement to monetize $500 million of Parkland's noncore assets by 2025;
• Enhancing the profitability of the core business with the announcement of $100 million of cost savings and efforts to unlock synergies from past acquisitions; and
• Maximizing free cash flow and deleveraging the balance sheet.

"Despite these initiatives, Parkland remains deeply undervalued, trading at an EV-to-EBITDA multiple of 6.5x1 and a 2024 maintenance free cash flow yield north of 13 percent," Engine Capital wrote. "We believe Parkland's upcoming November Analyst Day provides an opportunity for leadership to announce additional value-enhancing initiatives and further highlight the value of the business. "

The full letter is available here.

Calgary-based Parkland Corp. is an independent supplier and marketer of fuel and petroleum products and a convenience store operator. Parkland currently services customers across Canada, the United States, the Caribbean region and the Americas through three channels: retail, commercial and wholesale.