An activist investor is urging Spectra Energy Corp. to become a holding company and spin out its U.S. and Canadian operations, including Westcoast Energy Inc.
In a letter this week, Sandell Asset Management said it believes that Spectre Energy stock has a value of $48 per share, more than 40 per cent over its current price. But in order to get out of the rut, the investment firm said Spectra Energy should operate as a holding company akin to Kinder Morgan Inc. and other similar North American energy entities that "trade at a premium valuation."
Sandell is calling for a round of cost-cutting. The investment firm is also urging Spectra Energy to consider initial public offering process for Westcoast Energy, while holding onto control through significant share ownership, as well as a sale or IPO for DCP Midstream LLC in the U.S. – a 50/50 joint venture between Spectra Energy and Phillips 66.
In an e-mail, Spectra Energy communications director Caitlin Currie said, "We continue to appreciate and carefully consider ideas that will enhance shareholder value."
Spectra Energy is one of North America's largest pipeline and gas processing companies, with assets that include Union Gas, and the Maritimes and Northeast Pipeline in Atlantic Canada.
The letter seems to have been spurred at least in part by Spectra Energy's announcement last week that it plans to sell its remaining storage and transmission assets in the U.S. to Spectra Energy Partners. RBC Dominion Securities Inc. analysts said Tuesday they were lowering their rating on Westcoast Energy bonds based on uncertainty regarding Spectra Energy's future corporate structure. "Spectra's recently announced asset sale has resulted in credit rating pressure across all related entities, and headline risk has been compounded by news that an activist shareholder is calling for Westcoast to be spun out as a standalone entity," the report said.
A report from FirstEnergy Capital said there's no obvious Canadian buyer for the Westcoast energy assets but it would still likely be an attractive standalone organization. The report noted Westcoast was a publicly traded company until its takeover by Duke Energy in 2002. In 2006, Duke separated into two separate entities, a process that saw Spectra Energy created to continue with midstream and transmission operations.
"If Spectra spins out its Canadian assets, Westcoast may very well be a public company once again," the report said said.
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