Talisman Energy Inc. read the writing on the wall – that shareholders were getting ready to push for a big change – and moved first.
Some boards wait to be forced into a change, and it can end in very ugly fashion, as happened at Canadian Pacific Railway Ltd. Calgary-based Talisman appears to have headed that off by swapping chief executives before any public fight ensued by installing energy veteran Hal Kvisle in place of John Manzoni, who had worn out the patience of some shareholders.
The message seemed clear for Talisman when activist hedge fund West Face Capital suddenly appeared on the shareholder list this summer, having amassed a position that made West Face one of the company’s largest investors. West Face was laying low, and had not yet started to push, but the mere presence of the firm seems to have gotten the company’s attention. The fund has a reputation for shaking things up.
At the same time, there were plenty of signs that Mr. Manzoni was on shaky ground even before West Face arrived. Mr. Manzoni had five years to make something happen at Talisman after arriving from BP Plc. In his early days on the job, there was a strategic review, talk of focusing the portfolio and a burst of activity as the company sold assets. The company said goodbye to operations in places like Denmark.
But there remained a school of thought among shareholders and analysts that the company had not done enough to narrow its scope into something manageable.
Talisman was still far-flung in its ambitions, with operations in Asia, South America, North America and the North Sea. Some were exploration plays, while others such as the North Sea were about milking existing fields. The impression was the company was too small to be so stretched, and some of those assets would be worth more if they were simply sold to buyers who were better positioned to run them. Talisman could then focus on one or two plays.
On top of that, the numbers weren’t there. When Mr. Manzoni took over in September 2007, the stock was approaching $20. Before he was let go, the stock closed Friday at just under $14. Even after dividends, Talisman’s return to shareholders over the past five years lagged many peers. So did growth in cash flow.
In the end, probably the biggest clue that the board moved on its own – rather than in response to a shove – is that Mr. Manzoni got five years on the job, almost to the day. That signals that the board gave him a chance to make it work, but decided upon looking back at the achievements of the past half decade that a change was needed. Five years is more than enough time to judge a CEOs performance, without looking hasty.
So now what? West Face Capital founder Greg Boland declined to give a prescription when reached Monday morning, saying only that “we think this is a good first step.”