Activist calls on Parkland to buy back shares and reduce debt

A boat travels past the Parkland Burnaby Refinery on Burrard Inlet at sunset in Burnaby, B.C., on Saturday, April 17, 2021. THE CANADIAN PRESS/Darryl Dyck

CALGARY -

An activist investor that had been urging Parkland Corp. to sell or spin off its Burnaby refinery earlier this year is back with a set of new recommendations for the Calgary-based company.

In a letter to the Parkland board on Tuesday, New York-based Engine Capital LP said Parkland remains undervalued. It said it wants to see the company take further steps - including refining the company's capital allocation, improving its approach to executive compensation and simplifying its operations.

The hedge fund is also calling on the company to allocate around $800 million to share buybacks in 2024 and 2025, with repurchases front-loaded in 2024 to take advantage of the stock undervaluation.

It is also suggesting Parkland pay down about $600 million in debt over the next two years, primarily using proceeds from asset sales.

Engine Capital first set its sights on Parkland last March, publicly urging the company to get rid of what it called “non-core assets” and become a pure play fuel and convenience retailer.

That recommendation was rejected by the company, which - following its own strategic review last spring - stated it would not sell the Burnaby refinery, which it purchased from Chevron Canada for $1.5 billion.

However, Parkland did make other changes to its business, including putting a number of other assets, such as certain retail locations, up for sale.

The company also made changes to its board of directors.

“While we are encouraged by recent value-enhancing actions leadership has taken, we firmly believe additional steps need to be taken,” Engine Capital managing partner Arnaud Ajdler and partner Brad Favreau wrote in the letter.

“We look forward to expanding our ongoing dialogue with the board and management to help increase long-term value for the benefit of all Parkland stakeholders.”

Engine Capital says it owns about a 2.5 per cent stake in Parkland.

Parkland is scheduled to host an investor day on Nov. 14 when it will provide an update on its strategy, capital allocation framework and financial outlook.

“Parkland looks forward to sharing further updates on our future growth plans and capital allocation priorities with all our shareholders during our upcoming investor day,” Simon Scott, Parkland's director of communications, said in a statement.

Scott noted the company increased its 2023 guidance for adjusted earnings before interest, taxes, depreciation and amortization earlier this month and moved up its adjusted EBITDA target of $2 billion to 2024, a year earlier than expected.

This report by The Canadian Press was first published Sept. 26, 2023.