Activists seen stepping up campaigns in Canadian energy patch

Thu Sep 18, 2014 2:02pm EDT
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By John Tilak

TORONTO (Reuters) - Shareholder activism is likely to gather momentum in the Canadian energy industry in the coming months, sparked by some poor stock performance, the success of past campaigns and growing support from large institutional investors.

Money managers, as well as the proxy firms that help activists and targeted companies navigate these battles, say that a stronger economy has also given activists the financial firepower they need to buy the large corporate stakes required to push for control.

"You'll see more activism in oil and gas as it's easy to value the assets," said Stephen Griggs, chief executive of Smoothwater Capital, a Toronto-base activist fund.

"You have significant capital costs that need to be incurred in order to drill wells, you have companies leveraging themselves up, which creates risk," he added. "It's also a very entrepreneurial world where it's not always the best-run companies."

The Toronto Stock Exchange's oil and gas index is down by more than a third since its peak in 2008, while its benchmark TSX index has repeatedly hit record highs in recent months. That performance has put the energy sector on the radar of activists.

U.S. investors are showing rising interest in the sector. Last year, billionaire Carl Icahn acquired nearly 6 percent of Talisman Energy Inc. And Warren Buffett, who has traditionally been more of a value player than an activist investor, bought a slice of Suncor Energy Inc, Canada's biggest energy company.

Activist investors look for stocks that have lagged those of peer companies, seeking businesses that can be revitalized through asset sales, restructuring or the removal of inefficient boards and management.

The investment strategy is well known in the United States, where players such as Icahn have made billions buying stakes in big companies and shaking up management.   Continued...