A depot used to store pipes for Transcanada Corp's planned Keystone XL oil pipeline is seen in Gascoyne, North Dakota November 14, 2014.Andrew Cullen/Reuters
An activist investor has thrown in the towel following an attempt to bring about major changes at TransCanada Corp.
Regulatory filings show that Sandell Asset Management, which held 713,508 shares – worth $36.7-million – in the pipeline company at the end of September, sold the entirety of its position by the end of the year.
On Nov. 17, the New York-based hedge fund sent a letter to the pipeline company's board of directors and published a white paper that outlined actions management should take in order to unlock shareholder value.
The activist firm pushed for TransCanada to "drop down" all of its U.S. assets to its master limited partnership, TC Pipelines LP, to maximize the potential tax benefits. In addition, Sandell said the company should spin off its energy and power businesses, suggesting that this would increase the valuation of the pure-play pipeline business that remained.
Discussions with TransCanada's management prior to this public announcement failed to yield the changes sought by Sandell. In response to the letter from Thomas Sandell, chief executive officer of the hedge fund, the company issued a statement referring to his analysis as "flawed."
A source familiar with the matter pointed out that Enbridge implemented changes along the same lines as those Sandell had recommended for TransCanada, and its shareholders have been rewarded quite handsomely since that time. On Dec. 3, TransCanada's competitor announced a restructuring plan that included shifting its Canadian liquids pipeline business into Enbridge Income Fund. This move, coupled with plans to grow its dividend by between 14 to 16 per cent a year for the next four years, sent shares soaring to a record high. TransCanada CEO Russ Girling resisted calls to deviate from his current strategy of dropping down assets "on a systematic basis" rather than all at once. On Feb. 13, the pipeline company posted fourth-quarter profits that exceeded analysts' expectations and hiked its quarterly dividend by 8 per cent to 52 cents.
But while shares of TransCanada are up marginally since the day Sandell went public with its suggestions, Enbridge has gained more than 20 per cent. A partner at Sandell confirmed to The Globe and Mail in a phone interview that it has abandoned its quest to shake up TransCanada. However, Enbridge's stark outperformance of its peer may spur other activists to press for alterations to TransCanada's corporate structure.
Meanwhile, Sandell has moved on to its next battle. Earlier this month, the hedge fund published a report calling on Brookdale Senior Living Inc. to spin off some of its real estate portfolio into a REIT, adding that the firm's management structure and corporate governance practices were in need of a thorough review. Brookdale was Sandell's third-largest position at the end of the fourth quarter, trailing only General Motors Co. and Bob Evans Farms Inc.
Mason Capital Management LLC, another New York-based hedge fund that held a $206.8-million (U.S.) stake in TransCanada at the end of the third quarter, also liquidated its holdings in the fourth quarter. In September, The Wall Street Journal reported that Mason had met with TransCanada's shareholders to explore their interest in seeking changes very similar to the ones that were later proposed by Sandell.
Mason Capital Management did not immediately respond to a request for comment.