Logo/Parkland Corp.
Activist hedge fund Engine Capital LP, which owns 2% of Parkland Corp.’s outstanding shares, is calling on the fuel and convenience store company to explore all strategic alternatives, including evaluating a sale or spinning off non-core assets, to become a more focused fuel and convenience retailer.
While mergers and acquisitions have historically made sense for the Calgary, Alberta-based company at this stage, Parkland has enough scale to focus on optimizing its structure, simplifying its business and becoming at the best-in-class fuel and convenience retailer, Engine Capital. said
Parkland had nine acquisitions in 2021 alone, but slowed in 2022. It is the parent company of Charleston, South Carolina-based Parkland USA, which has c-stores under several brands, including On the Run.
Engine Capital managing partner Arnaud Ajdler and partner Brad Favreau sent a letter March 22 to Parkland’s board saying it initially invested in Parkland because of the strength and scale of its global fuel and convenience distribution network, its differentiated supply capabilities, the strength of its proprietary brands and its compelling valuation.
But Parkland has failed to translate its advantageous strategic position and quality assets into adequate returns for shareholders with total shareholder returns (TSR), trailing peers such as Alimentation Couche-Tard, Laval, Quebec, owner of the Circle K chain of stores, the partners said.
“Since its inception, Parkland has pursued an aggressive M&A strategy and thereby gained significant scale and supply advantages,” Engine Capital said. “The company today views this vertically integrated supply strategy as one of its core competitive advantages. In its pursuit of this strategy, Parkland has amassed a number of assets not typically owned by fuel and convenience operators. We believe that these assets create significant complexity and hurt the company’s underlying valuation, leading investors to view Parkland as a conglomerate with disparate assets, rather than a gaming convenience retailer. Conglomerates typically trade at a steep discount to the sum of the parts, and Parkland is no exception.”
Investors are willing to assign high multiples to fuel and convenience retailers because these businesses are stable, predictable and cash-flow generators, the letter said.
“These same investors are unwilling to value Parkland in the same way or take the time to analyze Parkland, as it also owns other assets, such as a volatile, more capital-intensive refinery, and low-growth commercial assets, such as diesel heating. and propane distribution companies. So if Parkland wants to be valued as a pure-play fuel and convenience retailer, it should simply become a pure-play fuel and convenience retailer,” he said Engine Capital.
Engine Capital said the board should explore all strategic alternatives for Parkland, including monetizing or spinning off its Burnaby refinery and its heating oil and propane distribution business. The Parkland multiple has contracted steadily since shortly after Chevron Canada’s purchase, which came with the refinery, according to the letter.
Engine Capital suggested using Marathon Petroleum Corp. as an example. Marathon, like Parkland, operated a vertically integrated business model and, under pressure from shareholders, in 2020 announced the sale of its Speedway retail operation to 7-Eleven. After that, Marathon’s share price has risen about 258% and outperformed its peers, Engine Capital said.
Investors believe Parkland could be worth $45 a share, a 55% premium to Parkland’s recent price, if the board follows through on its recommendations.
Parkland Corp. he did not immediately respond CSP request for comment.
Engine Capital Recommendations:
- Immediately begin exploring all strategic alternatives, including evaluating the sale or spin-off of non-core assets with the goal of becoming a more focused fuel and convenience retailer.
- Upgrade the board of directors and add directors with merchandising experience and convenient capital allocation.
- Improve the company’s compensation framework to better align management incentives with shareholder interests.
Members help make our journalism possible. Become a CSP member today and unlock exclusive benefits, including unlimited access to all our content. Register here.
