At Parkland, an activist investor says ‘benefits for me, but not for thee’

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It costs somewhere in the neighbourhood of $10-million a year to field a competitive team on the IndyCar circuit.

The sky-high cost of auto racing is part of the story behind an activist campaign against gas-station chain Parkland Corp. PKI-T, and part of the reason the Calgary-based company’s board is successfully pushing back against its largest shareholder’s attempts to sell the business.

When activists take aim at boards and management, as they do with increasing frequency, their goals are typically aligned with the rest of the company’s shareholders – everyone wants the stock price to rise. That alignment is missing at Parkland.

Here’s the backstory: Parkland’s largest shareholder is Simpson Oil, a family-owned company based in Barbados. Simpson Oil owns 34.4 million Parkland shares, a 19.8-per-cent stake worth $1.2-billion.

Founder Sir Kyffin Simpson, aged 90, acquired the holding by selling Parkland a network of 526 gas stations stretching across 23 Caribbean countries. He also owns auto dealerships and stakes in banks and cellphone companies. He is Caribbean royalty.

Here’s where race cars enter the picture.

Sir Kyffin’s grandson, also named Kyffin Simpson, is an up-and-coming driver. At age 19, he steered though crashes to place 21st in his first Indianapolis 500 in May. He’s considered a bright prospect in one of the most expensive sports on the planet.

The third generation of the Simpson clan, and their parents, have high-end hobbies and equally luxurious lifestyles. Owning Parkland shares helps cover their costs. The company pays a $1.36-a-share annual dividend, which translates into $47-million flowing into Sir Kyffin’s bank account each year.

At some point in the not-too-distant past, Sir Kyffin and his team no doubt realized they could make far more money in dividends by selling Parkland to U.S. energy companies, such as Texas-based Sunoco LP SUN-N, structured as master limited partnerships (MLPs). The Caribbean king began pushing for a sale. (Sir Kyffin’s representatives declined requests for an interview.)

Parkland pushed back. In April, Parkland said its board nixed a bid supported by Simpson Oil last year, while declining to name the suitor. In August, The Globe and Mail reported, Parkland turned down an $8-billion takeover offer from Sunoco in 2023.

For a Barbados-based entity such as Simpson Oil, a limited partnership delivers far more income from the same amount of capital, thanks to its tax treatment. The yield on Sunoco units is 6.4 per cent, while Parkland’s Canadian common shares yield 3.8 per cent. If Sunoco acquired Parkland in an all-stock transaction, Simpson Oil boosts its annual income to roughly $75-million, without incurring a tax hit.

However, Parkland’s Canadian shareholders could face significant tax issues if the Calgary company becomes a MLP. The majority of Parkland’s owners have a goal that is quite different from Simpson Oil’s. Their focus is on capital gains from Parkland stock – which are only taxed when shareholders sell – rather than a higher yield.

As recently as two years ago, Sir Kyffin was singing Parkland’s praises. After upping his stake in the company in 2022, he said in a press release: “We have tremendous confidence in the company, its management team and its bright future.”

In the past year, the relationship broke down. In December, two Simpson Oil-nominated directors quit the Parkland board. The Barbados company began pushing for the sale of Parkland and an end to a governance agreement struck in 2019.

Parkland is in play. Any time a 19-per-cent shareholder is calling for the sale of a company, potential buyers are going to circle. Hedge fund Engine Capital is also pushing for change. Parkland’s board is already responding to the pressure with shareholder-friendly moves such as the sale of its propane business in June for $115-million.

However, as long as Simpson Oil’s goals fail to align with the interests of the majority of Parkland shareholders, the Canadian company’s board is fully justified in defying Sir Kyffin’s demands. The Caribbean billionaire will have to find the millions needed to fuel an IndyCar team somewhere else.