April 20, 2015 / 5:03 PM / 3 years ago

Canada's Legacy Oil + Gas under fire from activist shareholder

CALGARY, Alberta, April 20 (Reuters) - Intermediate producer Legacy Oil + Gas formed a special committee on Monday to deal with hedge fund FrontFour Capital’s move to gain seats on its board, the first major case of shareholder activism in Canada’s oil patch since last year’s sharp drop in crude prices.

Calgary-based Legacy, which has assets in the foothills of southern Alberta and light oil operations in the Canadian Bakken region of southern Saskatchewan, came under scrutiny last month after legal documents showed it was backstopping a loan for its chief executive officer, Trent Yanko.

In a statement, the company confirmed it had received notice of Connecticut-based FrontFour’s plans to nominate three new directors at Legacy’s May 26 annual general meeting, and said a newly formed special committee had reached out to the fund “with the intent of working toward a constructive resolution.”

Legacy did not respond immediately to a further request for comment.

“We are not surprised by the activist approach given Legacy’s leveraged balance sheet, discounted trading multiple, and recent issues around corporate governance with respect to a personal loan guarantee for its CEO,” said RBC Capital Markets analyst Shailender Randhawa.

Yanko and his wife bought $5.68-million worth of Legacy shares last year through a margin loan from the Bank of Nova Scotia, supported by the lending value of shares owned by the couple.

But last year’s oil price drop and accompanying slide in Legacy shares triggered a margin call on the loan in December. In order to avoid the Yanko’s shares being sold off, Legacy’s board agreed to guarantee the loan.

Activist investors have been eyeing debt-ridden energy companies in recent months as U.S. crude prices tumbled to less than $45 a barrel, from more than $100 last year. Most, however, have been waiting for volatility to subside before making a move.

FrontFour owns 6.8 percent of outstanding Legacy shares and was co-founded by Zachary George, son of former Suncor Energy Inc chief executive officer and Calgary oilman Rick George.

Zachary George is one of FrontFour’s three shareholder nominees, along with Martin Ferron, CEO of North American Energy Partners, and Matt Goldfarb, acting CEO of Cline Mining Corporation.

In a statement last week, FrontFour said it was seeking to elect nominees to ensure the Legacy board of directors “acts in a manner consistent with governance best practices and maximizes value for all shareholders”. (Additional reporting by John Tilak in Toronto; Editing by Paul Simao)

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