Activist investor presses for change at Parkland despite board change

A U.S. hedge fund pushing for Parkland Corp. to split up or be sold welcomed a move by the Calgary-based fuel supply and convenience store giant to add two new directors to its board, but said it plans to continue its campaign.

On Wednesday evening Parkland said it had reached an agreement with its largest shareholder, Barbados-based Simpson Oil Ltd., allowing it to nominate two directors to Parkland’s board.

Parkland said it was a coincidence the board changes were announced amid an activist investor push, and said the departure of two existing board members was “planned for some time.”

Arnaud Ajdler, managing partner at Engine Capital, which is calling for change at Parkland, said the board moves are “a small step in the right direction.” However, he said it “speaks to the frustration of the shareholder base” that the changes are happening now, when the Simpson family could have exercised its right to appoint directors years ago.

Simpson Oil, a company controlled by Barbadian businessman Sir Kyffin Simpson, owns roughly one-fifth of Parkland after a share exchange last year in which Parkland gained full control of SOL Ltd., a fuel marketer and convenience store operator in the Caribbean. It has owned 10 per cent of Parkland since 2018, when it sold a controlling stake in SOL to Parkland.

Jim Pantelidis, chair of Parkland’s board, said the agreement with Simpson Oil secures the “ongoing support” of the company’s largest shareholder for Parkland’s “long-term strategy and future.”

Simpson Oil could not be reached for comment.

Parkland’s shares fell 4 per cent to $30.74 on Thursday, after jumping 10 per cent the day before when Engine Capital disclosed its activist push.

Engine, a US$700-million investment company based in New York, revealed on Wednesday it had acquired 2 per cent of Parkland’s shares. In a letter to Parkland’s board it argued Parkland’s “significant complexity” has resulted in “staggering underperformance” relative to rivals.

Engine called for Parkland to sell or spin off non-core assets, like its Burnaby, B.C., oil refinery and fuel supply businesses to become a focused fuel and convenience retailer. It said the company suffers from a “conglomerate discount,” and that if Parkland followed its recommendations, the company would be worth $45 a share.

“We believe the board can either simplify the business in the public market or sell the entire company to a strategy or a private equity firm,” Mr. Ajdler said in an e-mail Thursday. “Since going public, we have heard from many shareholders, former and existing employees, and it’s clear the status quo can’t continue.”

Among Engine’s other recommendations for Parkland was that the company refresh its board by appointing new directors and overhaul its approach to executive compensation.

Parkland chief executive officer Bob Espey has said the integration of the company’s fuel supply and retail businesses gives it an advantage over rivals, but has acknowledged the company’s shares are undervalued. In an interview last year, Mr. Espey said after an intense two-year period of merger-and-acquisition deals Parkland is focused on integrating its acquisitions, lowering leverage and improving shareholder returns.

In a research note Thursday, Bank of Nova Scotia analyst Ben Isaacson said Engine’s push is “positive” for Parkland and that it was “only a matter of time before Parkland’s share price underperformance was called out.”

He wrote that the idea to “crystalize the value of the refinery through a sale or spin” has been made before. “The idea is only far from new because it is a good one,” Mr. Isaacson wrote.

The analyst has a “sector outperform” rating and one-year target of $40 for Parkland’s shares.

“At the very least, Engine Capital’s focus on reviewing portfolio structures should not be dismissed,” he wrote.