Carl Icahn, billionaire shareholder activist, speaks during the World Business Forum in New York, U.S., on Oct. 11, 2007. A surge of investor activism in the oil patch has forced boardroom changes. But share prices have so far failed to take noticeCHIP EAST
Carl Icahn sent a shock wave through downtown Calgary when he trumpeted via Twitter that he had amassed a position in Talisman Energy, a perennial oil-patch underachiever. Talisman's stock shot above $13 a share as investors wagered the famous U.S. activist investor would force a breakup, sale or other drastic action. Within weeks of the tweet on Oct. 13, 2013, Icahn had struck a deal with Talisman's board to jointly search for solutions to the producer's long-running problems.
Then came…nothing. Months went by and the shares languished, until Spain's Repsol SA began to talk about a takeover. The story ended with a whimper in May, when Repsol completed its purchase of Talisman at the equivalent of $9.33 a share, well below what Icahn paid.
The case highlights the generally disappointing outcome from shareholder activism in the Canadian oil patch. In other sectors, the appearance of a reform-minded outside investor has signalled big gains ahead – think of Bill Ackman's success in shaking up Canadian Pacific. But in Calgary's petroleum community, a recent outburst of activism has gone hand in hand with losses.
Why has activism flopped? Mostly it's the reality of the oil industry, where commodity prices trump everything else, says Brook Papau, analyst at ITG Investment Research. "Your theory of what is right or wrong with a company, and what needs to change, can all be technically sound, but it can be blown away by a commodity-price change and it's out of your control."
Take Bellatrix Exploration Ltd. Its shares surged last August when New York-based Orange Capital announced it had amassed a significant stake. Then the two sides agreed to put Orange's managing partner, Daniel Lewis, on the company's board and hold off on any harsh moves until December, 2015. By May, the stock had fallen nearly 60 per cent.
At Gran Tierra Energy Inc., the company's biggest shareholder, West Face Capital Inc. of Toronto, forced a management shakeup this spring. A new CEO, oil-patch veteran Gary Guidry, assumed control in May with a mandate to focus the company on its operations in Colombia. But the shares have yet to climb above the level of late April, before West Face made its demands known.
Given the lacklustre recent results, cautious investors may now want to regard the appearance of an activist investor in the oil patch as a "sell" signal. But a fairer reading is probably to conclude that it all depends on the outlook for oil. If you think that petroleum prices are set to rebound, now might be a good time to pick up some Bellatrix or Gran Tierra shares. At least you'll be paying less than the activists did.
For more from Report on Business Magazine, click here.
Jeffrey Jones