The Ultramar gas station on Broadview Ave. and Bater Ave. on Mar. 26.Fred Lum/The Globe and Mail
Parkland Corp. PKI-T shares jumped more than 5 per cent on Monday as a war of words with its largest shareholder escalated, and investors wagered that the gas-station and convenience-store operator could be a takeover target.
Simpson Oil Ltd., which owns 19.7 per cent of Parkland, called late last week for the Calgary-based company to launch a strategic review “including a potential transition of the company to new ownership.” Simpson Oil argued such an examination is crucial to improving Parkland’s operations and financial performance.
It said it would be open to a deal under which Parkland shareholders would exchange their stock with those of another operator that could boost value, optimize the company’s assets and allocate capital more diligently than the current management group.
“As a supportive partner, we have consistently encouraged the company to maximize value and returns to shareholders. The results have fallen short of our expectations,” Simpson Oil said in its statement.
Parkland said on Sunday a review is unnecessary and would not benefit investors. “The current call for a strategic review represents another attempt by Simpson Oil Limited to circumvent established corporate governance without considering the interests of all shareholders,” it said in a statement.
Parkland noted that Simpson Oil last year sought to solicit a sale of the company at a price “significantly below” its intrinsic value. At the time, Simpson Oil had two representatives on Parkland’s board.
“After careful consideration, the board determined that pursuing this alternative would not serve the best interests of the company and its shareholders,” Parkland chair Steven Richardson said in the statement. “Parkland’s board fulfils its responsibilities for the benefit of all shareholders, not at the direction of one.”
Parkland spokesman Simon Scott declined to comment further.
The weekend back-and-forth represents more pressure on the company from large investors, who point out Parkland trades at a discount to its peers following a string of acquisitions in recent years and have pushed for strategic change. That has included urging the sale of its refinery in Burnaby, B.C.
Following a string of acquisitions, Parkland has set a target of selling $500-million in assets by the end of 2025. In March, it hired two real estate companies to search for buyers for 157 retail sites that operate under the Chevron, Ultramar, Pioneer and Fas Gas banners, many of which have On the Run convenience stores.
Bank of Nova Scotia analyst Ben Isaacson said he believes Parkland is now in play. In a note to clients on Monday, he said it is possible that Simpson Oil could funnel its ownership position into a hostile bid.
Mr. Isaacson noted Parkland stock had slumped in recent months as Simpson Oil kept investors guessing about its next course of action. On Monday, Parkland rose $2.18 to $43.12 on the Toronto Stock Exchange. By Friday’s close it had been down 5 per cent since the start of the year.
Grand Cayman-based Simpson Oil became a major shareholder in Parkland in 2018 when it sold a majority stake in Caribbean fuel retailer SOL to the Canadian company. Parkland consolidated its ownership of SOL in 2022, with both deals worth a combined $2.35-billion and lifting Simpson’s stake in Parkland to near 20 per cent.
Parkland said Simpson Oil is in violation of a governance agreement that the two sides signed in 2019, under which Simpson Oil committed to not exercising undue control and influence over Parkland in pursuing its own interests.
That includes restrictions on calling meetings of shareholders, acting as an activist investor or transferring its shares in connection with a takeover bid, noted Kevin Chiang, an analyst with Canadian Imperial Bank of Commerce.
However, Simpson Oil said when it announced in January its director nominees had resigned that it disagreed with Parkland’s contention that the governance agreement remains in place.
Simpson Oil’s call for a strategic review at Parkland shows that talks are at an impasse, Mr. Chiang wrote in a research note. He said its calls for a strategic review and suggestion that it is open to a deal are positive for Parkland’s stock price.
“Fundamentally, we believe [Parkland] is positioned to double its available cash flow per share from 2023 to 2028 and trades at an undemanding valuation. With [Simpson Oil] taking a more activist stance, this likely acts as an additional near-term catalyst,” he said, setting a $57-a-share 12-month price target.