Suncor Vitality Inc.’s SU-T board of administrators is making it simple for activist Elliott Funding Administration LP to win assist for a shakeup at one among Canada’s largest vitality firms.
Going into final yr’s annual assembly, the Calgary-based oil and fuel producer was on discover that institutional traders had been sad with weak operational efficiency versus friends, together with Suncor’s woeful security document.
After three office fatalities at Suncor’s Alberta operations in December, 2020, and January, 2021, Britain’s largest pension plan supervisor went out of its technique to clarify why it voted towards the board’s selections on govt compensation.
Forward of Suncor’s 2020 annual assembly final Could, Royal London Asset Administration, which invests a complete of £159-billion for its shoppers and owns three million Suncor shares, mentioned: “Given firm fatalities, we’ve considerations over the discretionary adjustment to awards in relation to security efficiency.”
Activist U.S. hedge fund seeks overhaul of Suncor Vitality
Suncor’s administrators awarded Suncor chief govt Mark Little a complete of $10.1-million in 2020.
This January, one other employee died in a truck crash at Suncor. The corporate’s accident fee rose in contrast with the earlier yr. Suncor’s operational and inventory market efficiency continued to lag behind rivals reminiscent of Canadian Pure Sources Ltd., Cenovus Vitality Inc. and Imperial Oil Ltd.
The board mentioned the best issues. Within the proxy round explaining the logic behind 2021 govt compensation, the administrators mentioned: “Security is, and all the time has been, a core worth for Suncor.” The administrators additionally mentioned: “We suffered some working setbacks and acknowledge that we should do higher.”
Nevertheless, Suncor’s board elevated govt compensation. This yr, Mr. Little’s package deal features a $1.96-million money bonus that’s 127 per cent of his goal fee. In different phrases, the board signalled the CEO exceeded expectations. Mr. Little earned a complete of $11.8-million.
Enter Elliott, with 4 a long time of expertise in easy methods to mix exhaustive analysis with bare-knuckle techniques to overtake boards and set new methods at blue-chip firms reminiscent of AT&T Inc. and Marathon Petroleum Corp.
After constructing a 3.4-per-cent stake in Suncor, price greater than $2-billion, Elliott launched a marketing campaign final week to place 5 new administrators on Suncor’s 10-member board.
“Resulting from operational and issues of safety, Suncor’s former premium valuation has given technique to a deep low cost,” mentioned Elliott in a 45-slide presentation that detailed plans for every arm of the corporate. Throughout industries – from oil to logging, autos or development – there’s a direct hyperlink between employee security and monetary efficiency. To make sure that is the case at one of many nation’s dominant vitality firms, Elliott mentioned: “Suncor should correctly account for security in administration compensation metrics.”
As soon as new administrators are in place, the fund supervisor needs to see Suncor overhaul administration, enhance efficiency from its oil sands properties, return additional cash to shareholders, and probably dump its 1,800 department Petro-Canada fuel station community, which analysts estimate is price about $10-billion.
Elliott is demanding rigor that Suncor’s board, up to now, has failed to point out. That message is resonating with institutional traders.
Suncor’s inventory value, which has underperformed friends since 2020, soared on information of the activist’s arrival. Final week, fairness merchants mentioned long-term Suncor traders held on to their stakes, anticipating Elliott will achieve enhancing efficiency, whereas hedge funds piled in, planning to trip the activist’s coattails.
Nationwide Financial institution Monetary vitality analyst Trevor Wooden spoke for a lot of of Suncor’s institutional shareholders on Friday when he mentioned in a report: “We agree that change is required and are detached to the steps made to generate improved execution.”
What comes subsequent? Final week, Suncor mentioned its board and administration will meet with Elliott “sooner or later.” The corporate employed proxy contest specialist Kingsdale Advisors to assist take care of the activist’s marketing campaign. Mr. Little and the board are anticipated to stipulate their technique at Suncor’s annual assembly scheduled for Could 10.
Will Elliott’s marketing campaign to resume Suncor’s board succeed? Contemplate what occurred again in 2011, when activist investor Invoice Ackman’s Pershing Sq. Capital Administration rode into Calgary, pushing for a revamped board and new CEO at a flagship firm, Canadian Pacific Railway Ltd.
Within the months that adopted, Pershing Sq.’s plans received backing from CP Rail’s institutional traders – a present of assist that shocked the railway’s administrators. CP Rail’s inventory value subsequently took flight; the activist marketing campaign is taken into account an impressive success for traders.
Suncor’s persevering with security and operational points, and the ensuing weak point in its valuation, depart its board susceptible to the identical revolution that reshaped CP Rail.
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