Suncor Energy (SU.TO)(SU) could receive as much as $8.9 billion after taxes for its retail gas station network, by one estimate, as the company gives in to an activist’s call to review a possible sale.
The Calgary-based energy giant announced on Monday that it has reached a deal with Elliott Investment Management. In April, The Florida-based hedge fund went public with demands for a strategic review of assets, and changes to Suncor’s board, in the wake of deadly safety mishaps and financial performance that lagged peers.
On July 8, CEO Mark Little announced he was leaving the company. His departure came a day after a worker died at Suncor’s Base Plant mine in northern Alberta. Suncor has tapped Kris Smith, executive vice president for downstream operations, as interim CEO while the company searches for a permanent replacement.
Elliott's plan, as published on the website RestoreSuncor.com, promises to "unlock" more than $30 billion in value for shareholders. On Monday, Suncor agreed to add three new directors and form a committee to oversee a strategic review of its downstream business.
Suncor owns Petro-Canada, a roughly 1,600-location gas station chain that Elliott believes would draw a hefty sale price from a strategic buyer. According to Credit Suisse, Suncor’s downstream retail business would command pre-tax proceeds of $9.6 to $11.2 billion, and after tax cash proceeds of $7.7 billion to $8.9 billion.
“We see a possibility that like Marathon Petroleum, Suncor will end up selling its retail business,” analyst Manav Gupta wrote in a note to clients on Monday. “We believe the primary use of proceeds could be to support higher shareholder returns as was the case with Marathon's Speedway sale proceeds.”
Seven & i Holdings Co., the world’s largest convenience store operator, agreed to purchase Marathon’s gas station business for US$21 billion in 2020, adding nearly 4,000 locations to its North American network.
Like Suncor, Ohio-based Marathon faced pressure from Elliott, which called for performance improvements and the sale of its retail business.
Toronto-listed Suncor shares added 1.91 per cent to $40.07 at 12:33 p.m. ET. The stock has climbed about 24 per cent year-to-date.
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.