Suncor Energy Inc. said on Monday it had reached an agreement with activist investor Elliott Investment Management LP that would allow it to undertake a strategic review of its Petro-Canada gas station chain with the goal of “unleashing value shareholder”.
The review of Suncor’s retail business will include considering a range of alternatives, including a potential sale of operations, the company said in a statement.
There are over 1,500 Petro-Canada gas stations and stores nationwide.
In an interview, Eight Capital analyst Phil Skolnick said he doesn’t think Suncor will ultimately sell Petro-Canada’s retail business.
“If they go into a big sales process with retail, it will be a distraction to resolve operational issues and personnel issues on the mining side,” he added. Eight Capital lowered its rating on Suncor from “sell” to “neutral” last week.
But if Suncor does eventually decide to sell its retail business, Skolnick said there would likely be “multiple players” involved in its purchase. He gave no idea who it might be.
In a note to clients on Monday, Credit Suisse analyst Manav Gupta said he saw the possibility of Suncor selling its retail business. Credit Suisse has an “outperform” rating on the stock.
“We estimate normalized earnings (earnings before interest, taxes, depreciation and amortization) at $800 million for this business,” he said. “We see this business earning $9.6 billion to $11.2 billion in pre-tax cash proceeds and $7.7 billion to $8.9 billion in after-tax cash proceeds.”
RBC analyst Irene Nattel said in a note to clients that Alimentation Couche-Tard Inc. would likely be interested in participating in the sale of Petro-Canada.
“As with any potential sizeable transaction, we would expect (Alimentation Couche-Tard) to be part of any potential process involving Suncor’s retail assets, but market concentration likely prevents it from bidding on the whole of the network,” she said.
In 2016, Alimentation Couche-Tard acquired a significant portion of Imperial Oil Ltd’s 497 Esso service stations.
Suncor’s Board of Directors expects to complete the strategic review in the fourth quarter of this year and will provide an update at that time.
The deal announced on Monday will also see three new independent directors join the company’s board.
The new board members are former BHP Billiton executive Ian Ashby, former Devon Canada chairman Chris Seasons and former Talisman Energy executive Jackie Sheppard.
“Suncor is committed to continual renewal of its Board of Directors to ensure that we retain diverse and qualified directors responsible for overseeing corporate strategy and driving shareholder value,” said Suncor. Chairman of Suncor’s Board of Directors, Michael Wilson, in a statement released Monday.
Skolnick said the three new board members are “strong” choices and will provide the right mix of knowledge and expertise in mining and corporate transactions.
Elliott had expressed frustration with Suncor in April over what he called a recent decline in the energy producer’s performance. In a letter, the company called for an overhaul of Suncor’s board and management, as well as the possible sale of Petro-Canada. Elliott pointed to Suncor’s safety track record, as well as other operational challenges and the company’s lagging share price.
“We appreciate the collaborative dialogue we have had with Suncor’s Board and fully support the appointment of three new independent directors who will bring fresh and relevant perspectives to the Board, as well as the Board’s commitment to exploring strategic options regarding Suncor’s retail operations,” Elliott partner John Pike and portfolio manager Mike Tomkins said in Monday’s release.
Suncor chief executive Mark Little resigned earlier this month, a day after the company announced the death of a contractor at its base mine north of Fort McMurray, Alta., the latest of a series of workplace fatalities and safety incidents that have plagued the energy giant. .
Kris Smith, senior vice president of Suncor’s Downstream division, has been named interim CEO.
Two of the new directors will sit on the committee the board formed to conduct a global search to select the company’s next CEO.
Gupta said Suncor’s next CEO will likely be an outside candidate.
This report from The Canadian Press was first published on July 18, 2022.