Gas-station operator Parkland agreed last month to Sunoco’s offer.DARRYL DYCK/The Canadian Press
Shareholders of Canadian gas station and convenience store operator Parkland Corp. will be leaving value on the table by accepting a roughly $7.7-billion takeover offer from Sunoco LP, one analyst said on Monday, but the friendly American bid is likely the most they can expect.
Simpson Oil Ltd., Parkland’s largest shareholder with a 19.8-per-cent ownership stake, said late Friday it would support Sunoco’s $44-per-share proposal, ending speculation that it might join forces with Engine Capital LP in opposing the deal. Engine Capital, a New York-based hedge fund that owns roughly 2.5 per cent of Parkland, said earlier Friday that an “expedited and flawed” sale process led to a transaction that “materially undervalues Parkland.”
On May 5, Calgary-based Parkland agreed to Sunoco’s offer of US$3-billion in shares and US$2.6-billion in cash. The proposal, which values Parkland at roughly $200-million less than a previous offer Sunoco made two years earlier in the summer of 2023, was announced just one day before Simpson Oil was poised to win control of the company’s board of directors. After announcing the takeover, Parkland moved its meeting to June 24 and included a vote on the Sunoco offer.
On Monday, Bank of Nova Scotia analyst Ben Isaacson told clients “many, including us” believed Simpson Oil would also oppose the offer, given the Cayman Islands-based fuel distributor initially said that “pushing forward with any transaction ahead of board transition represents a clear breach of fiduciary duty – an obvious attempt to cling to power and sidestep shareholder will.”
“We were wrong,” Mr. Isaacson said.
The statement from Simpson Oil expressed confidence in the Sunoco team, which is controlled by billionaire Kelcy Warren and has prominent Trump donor Ray Washburne as its board chair, to create value. Simpson Oil also said the deal will address “lamentable governance and performance issues that have plagued Parkland for years.”
Parkland, with its more than 4,000 Esso, Chevron, Ultramar and Pioneer gas stations, On the Run convenience stores and M&M Food Market locations, has an intrinsic value in the “mid-$50s” per-share range, Mr. Isaacson said.
“So, to be unequivocally clear, on an unrisked basis, we think shareholders are leaving value on the table,” he said. “That said, we don’t live in an unrisked world. In our minds, there is very low visibility as to how this intrinsic value gap will close near-term.”
Rejecting the deal would likely see Parkland shares fall between 20 and 30 per cent toward $30 per share, Mr. Isaacson said.
“This is why we believe shareholders should begrudgingly accept the SUN offer (and this is perhaps what the Simpsons now see too),” he said. “There are no other buyers. Therefore, there is no reason why SUN should compete against itself by offering a superior deal.”
Kevin Chiang, an analyst at Canadian Imperial Bank of Commerce, also abandoned hope of a higher price emerging, telling clients in a note published Sunday that they should accept the Sunoco offer.
“Since the deal was announced, a key question was whether Simpson Oil would support this deal or run a Vote No campaign, which opened the door for potential upside to the offer price,” Mr. Chiang said. “With Simpson Oil coming out in support of the deal, in our view this removes the potential upside optionality.”
Simpson Oil, founded by 82-year-old Barbados-born billionaire Sir Kyffin Simpson, acquired its Parkland stake by selling the Canadian company its Caribbean refueling station network in two transactions worth a combined $2.35-billion in 2018 and 2022. It would take barely a year for the relationship to fall apart.
In late 2023, two Simpson-appointed Parkland directors 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, The Globe and Mail reported at the time. Simpson Oil subsequently declared an agreement preventing it from launching a proxy fight or soliciting takeover bids to be invalid.
The Ontario Superior Court sided with Simpson Oil earlier this year, freeing the company to more openly advocate for change at Parkland.
The Simpson family earns tens of millions of dollars in annual dividends through its stake in Parkland. But as The Globe has previously reported, the family could earn tens of millions more if Parkland was sold to a master limited partnership such as Sunoco.
Sunoco has a current dividend yield of 6.78 per cent. Parkland, by comparison, has a current dividend yield of 3.73 per cent.