Calgary-based Fuel retailer Parkland Corp. PKI-T is being urged not to fight a multimillion-dollar legal battle with its largest shareholder and focus instead on refreshing the company’s board of directors.
“It is becoming increasingly obvious that Parkland is at a crossroads,” New York-based hedge fund Engine Capital LP said in a letter to Parkland’s board on Monday. The board can either “continue to act in a self-serving manner by trying to entrench itself” or it can “begin working collaboratively,” Engine Capital said.
“Engine is hereby putting the board on notice not to engage in wasteful litigation with its shareholders.”
Late last year, two Parkland directors appointed by Simpson Oil Ltd. – a family owned business based in the Cayman Islands that is Parkland’s single largest shareholder with a nearly 20-per-cent ownership stake – resigned after just seven months on the board.
Michael Christiansen and Marc Halley left after Parkland refused to name one of them as the company’s chair, sources said at the time. The Globe and Mail agreed not to identify the sources because they were not authorized to speak on board governance.
In a Jan. 2 note to clients, TD Cowen analyst Michael Van Aelst said “there were disagreements on changes to board composition and frustrations over the speed at which they were occurring.”
Since those two resignations, Simpson Oil has declared its governance and board nomination agreements with Parkland to be invalid. According to Bank of Nova Scotia analyst Ben Isaacson, those two agreements prevented Simpson Oil from engaging in any activism against Parkland or soliciting bids to acquire the company.
Exiting those agreements, Mr. Isaacson said in a note to clients earlier this month, would allow Simpson Oil “to have a more active voice” in Parkland’s corporate strategy. Parkland, however, has said the governance agreement still applies and the company will continue to enforce its terms.
Engine, which has a 2.5-per-cent ownership stake in Parkland, said in its letter that the company should not “embark on a strategy that wastes millions of dollars by litigating the governance agreement between Simpson and Parkland.”
“The board’s strategy is short-sighted, ominous and, we believe, signals a willingness to engage in self-serving and wasteful legal tactics for its own benefit,” Engine said. “The behaviour we are witnessing is a clear indication of an unsophisticated and self-interested board focused on self-preservation.”
Parkland has already retained Walied Soliman of Norton Rose Fulbright Canada LLP, Engine said. Mr. Soliman regularly acts on behalf of companies seeking to defend themselves against activist-investor campaigns.
Parkland owns more than 4,000 gas stations and electric-vehicle charging terminals in 25 countries, along with On The Run convenience stores. Engine has spent the past year trying to persuade Parkland to cut costs and sell non-core assets such as its refinery in Burnaby, B.C.
The campaign has been somewhat successful, with Parkland targeting $500-million in asset sales by the end of 2025, though the company declined to put the Burnaby refinery up for sale.
Simpson became a major shareholder in Parkland in 2018 when it sold a majority stake in Caribbean fuel retailer SOL to the Canadian company. Parkland consolidated its ownership of SOL in 2022, with both deals worth a combined $2.35-billion and bringing Simpson’s stake in Parkland to 19.55 per cent.
When Parkland holds its next annual general meeting, currently scheduled for May, Mr. Van Aelst said in his note to clients that Simpson would be free to abstain from voting without violating its governance agreement with the company, which “could provide more insight into areas of frustration/disagreement.”