Activist company

A sale of Petro-Canada by Suncor would transform the company and change the Canadian gasoline retail landscape

Suncor and US activist investor Elliott Investment Management Inc. have announced a deal that would see the company divest itself of Petro-Canada’s 1,500-location retail network.DARRYL DYCK/The Canadian Press

Suncor Energy Inc. SU-T faces a choice that will transform the business: either reap billions of dollars in one-time proceeds from a sale of Petro-Canada, or continue to reap the long-term benefits of a historic national brand in an evolving retail essence industry.

Suncor and U.S. activist investor Elliott Investment Management Inc. announced a deal on Monday in which they said the company could divest the 1,500-site retail network “in an effort to unlock shareholder value.” . Elliott pegged the value of the national enterprise at $4.7 billion to $9 billion.

As part of its agreement, Suncor has appointed three new independent directors to its board. Two of them, Jackie Sheppard and Chris Seasons, are Canadian oil industry veterans who will oversee a strategic review of Petro-Canada. The process must be completed by December.

After more than four decades, the Petro-Canada brand sits alongside others like Tim Hortons and Canadian Tire CTC-T in the national fabric. But the structure of the industry has changed, with integrated oil companies giving way to the rise of independent retailers.

Meanwhile, electric vehicles are a wildcard in the long-term future of gasoline retailing, said David Finch, a marketing professor at Mount Royal University in Calgary. The rate at which consumers are adopting electric vehicles adds uncertainty to the mix.

So any Petro-Canada buyer risks taking on gas pumps, tanks and other infrastructure that may one day become obsolete as cars and trucks become electrified.

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Some analysts question the need for a sale. Suncor would have few places to deploy the product. Tar sands producers have been reluctant to take on new multibillion-dollar projects, blaming escalating development costs and limited pipeline capacity to export oil. More importantly, the industry faces increasing restrictions on carbon emissions as Canada seeks to reach net zero by 2040. Suncor is part of an industry coalition whose goal is to achieve this target through carbon capture and other technologies.

A review is helpful, but parting with assets may not be the best outcome, said Toronto-Dominion Bank analyst Menno Hulshof. Hulshof noted that Suncor’s downstream business leads the industry in refinery reliability and profit margins. The marketing division, which offers secure and traceable supply, has played a key role.

Suncor does not need a large influx of cash to service its debt, so “outsized shareholder returns” in the form of stock buybacks and dividends would be likely, he wrote in a memo. research.

Several companies have abandoned their Canadian retail networks in recent years, such as Imperial Oil Ltd. IMO-T, Cenovus Energy Inc. CVE-T and Chevron Corp CVX-N. Food Couche-Tard Inc. ATD-T, Parkland Corp. PKI-T and 7-Eleven were buyers.

Former Suncor chief executive Mark Little has always said the company – which Suncor acquired in a 2009 takeover – was an integral part of the continent’s best refining and marketing operation. At last count, it represents 11% of gas stations in Canada.

Mr Little resigned this month after the latest death in the company’s oil sands operations. Security breaches and frequent operational outages were the main criticisms when Elliott launched its campaign for a corporate overhaul in April. He then floated the idea of ​​selling Petro-Canada.

Couche-Tard is widely seen as a logical buyer. It is likely, however, that antitrust concerns could prevent it from acquiring the entire network, leaving other companies, such as Parkland, to pick up parts where there is little overlap.

Executive Chairman and Founder Alain Bouchard made Couche-Tard a leading consolidator, and the company significantly increased its store count and revenue through acquisitions in the United States and Europe.

Couche-Tard operates some 14,000 stores in 26 countries, including 2,100 in Canada, most under the Circle K brand. The company has not made a major acquisition since buying Texas-based CST Brands Inc. for US$4.4 billion in 2017 and seems keen to strike a deal if the price is right.

Jennifer Vincent, spokeswoman for Couche-Tard, declined to say whether a deal was possible.

Simon Scott, spokesperson for Calgary-based Parkland, another growing independent that sells gasoline in Canada, the United States and the Caribbean under banners such as Esso, Chevron and Ultramar, also said declined to comment on his level of interest.

The neighborhood gas station has already shifted from a relatively predictable, limited-hours operation to an all-day, all-night operation that marries fuel with food and other conveniences. Beyond that, real estate today is expensive and difficult to develop, environmental risk continues to grow, and petroleum equipment, both underground and overhead, has become incredibly complex and expensive, according to the consultant from the company. Jim Woods Industry of Burlington, Ontario. Consultant.

When it was established as a Crown corporation in the 1970s and acquired several companies, Petro-Canada was a symbol of the federal foray into Alberta’s energy wealth. It softened its image in the West with its sponsorship of the Calgary Winter Olympics in 1988 and remains known for its support of amateur sport. The company also has a pan-Canadian network of charging stations for electric vehicles.

Brand strength as part of a national network provides tremendous value, Professor Finch said. “If a company like Parkland or Couche-Tard is planning to do that, as soon as you start dismantling the asset, you start removing brand value, and then it becomes a very questionable spinoff,” he said. .

As well as a sale, Suncor could opt for an initial public offering to retain the entire network while offering direct ownership to investors, Prof Finch said.

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