In boxing terms, U.S. activist Elliott Investment Management LP scored a knockout on Monday in its bout with one of Canada’s largest oil and gas companies, Suncor Energy Inc. SU-T
What’s absurd about this brawl is that it had to happen at all.
If the Suncor board and executives – and its institutional investor owners – were doing what they’re paid to do, the Calgary-based company wouldn’t need a scrappy fund manager from Florida pounding away at common-sense themes. The folks charged with running Suncor, along with its shareholders, would ensure workplace safety was a priority, and occasionally revisit the company’s strategy to see if it suits the time.
Yet it took the arrival in April of Elliott founder Paul Singer – who previously won dust-ups with blue-chip U.S. companies such as AT&T Inc. T-N and Marathon Petroleum Corp. MPC-N – to point out simple truths.
Elliott pushed for boardroom renewal because Suncor’s track record as an operator is appalling. And Elliott advocated for reviewing an outdated, conglomerate-style structure, with an eye to selling off the company’s 1,800-outlet Petro-Canada gas station chain.
On Monday, Elliott got pretty much everything it asked for. The fund manager signed off on three new directors – all industry veterans – with the potential for adding a fourth person to the 13-member board if Suncor continues to underperform. The company also agreed to a strategic review of its Petro-Canada division, which analysts and Elliott estimate could fetch up to $9-billion.
If you’re a director, executive or institutional investor in an underperforming company, here’s a key take-away from Suncor’s experience: How can I do better, and avoid the cost and embarrassment of having Elliott arrive to do my job?
There’s nothing new in the Suncor problems Elliott targeted this spring. In recent years, the company’s share price lagged peers such as Canadian Natural Resources Ltd. CNQ-T, Cenovus Energy Inc. CVE-T and Imperial Oil Ltd. IMO-A because of its operational woes.
Workplace fatalities sum up the problem. Since 2014, at least 12 people have died at Suncor sites, more than all of the company’s oil sands peers combined. Suncor chief executive Mark Little resigned earlier this month after the latest fatality, but his departure alone doesn’t solve deep-rooted cultural issues.
One of Suncor’s new directors endorsed by Elliott is former BHP Group Ltd. executive Ian Ashby. He comes from a mining company that’s far larger than Suncor and hasn’t had a workplace fatality in more than three years. That’s expertise the energy company clearly needs. Why did it take the arrival of an activist to find a board member with Mr. Ashby’s credentials?
When it comes to the company’s structure, Mr. Little insisted Suncor was best served by continuing to own its retail division. Numerous energy companies – including domestic players such as Imperial Oil and Cenovus and former Elliott target Marathon – opted instead to divest gas stations, in part because we’re all soon going to be driving electric vehicles that can fuel up anywhere.
As of Monday, Suncor has a five-member board committee – including Elliott-backed oil patch veterans Chris Seasons and Jackie Sheppard – reviewing the retail operations “with the goal of unlocking shareholder value.” The group expects to finish this work by December and Suncor’s agreement with Elliott states their findings will be made public. Where was this sort of urgency prior to the Florida fund manager’s campaign?
When Elliott arrived at Suncor, it encountered a board chockablock with retired CEOs. The activist arrived at a company owned by major institutions – Fidelity, Mackenzie and RBC Global Asset Management. Those two groups – directors and institutional shareholders – are charged with overseeing governance at Suncor. In the wake of Elliott’s successful campaign, they now look complacent.
Mr. Singer, Elliott’s 77-year-old co-CEO, has made a US$4-billion-plus fortune over four decades by shaking up companies. After a three-month battle with Suncor, he’s claimed another prize. How can activists like Mr. Singer keep winning showdowns when all they’re doing is posing the questions that boards and long-term shareholders are meant to ask?
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