Sandy Edmonstone is waging war against history.
The former investment banker is betting that shareholders of Crescent Point Energy Corp. are so fed up with the stock’s poor performance that they’ll look past his rather small investment in the oil producer and back his late-entry slate of board nominees.
Mr. Edmonstone’s new firm, Cation Capital Inc., is pushing for change at Saskatchewan’s largest energy producer, a company that seems to have a long-term lease in the penalty box. His ideas for change have yet to be fully formed.
With his approach, he aims to succeed where so many who have gone before him have failed − profiting from an activist campaign in the Canadian oil patch. The trick, especially with an industry downturn into its fourth year, is unearthing some new strategy, or way to carve up the company, that has not been tried yet.
Just ask legendary activist Carl Icahn, who bought up a sizable interest in Talisman Energy in 2014. Before long, the energy downturn kicked in, he agreed to work with the company and found Talisman’s management was already exploring just about every option to boost value. He took a loss, as did many others in similar attempts.
Mr. Edmonstone says his advantage is the intimate knowledge he and his cohorts seeking board seats have in Canadian energy.
This promises to be a good, old-fashioned scrap. Both sides have come out swinging, with Cation blasting the Crescent Point board for being “incapable of implementing a cohesive strategy” and the target firm countering that “Cation lacks credibility and is engaged in an ill-conceived and self-serving exercise.”
Cation (pronounced “cat-eye-on”, in reference to a positively charged atom) fired off a letter last week to Crescent Point chairman Peter Bannister, pointing out its view of the company’s faults, including “ballooning” executive pay. It is putting forward four board nominees who are well-known energy and business types.
They are Tom Budd, the tough-talking retired GMP Capital banker; Dallas Howe, former chairman of Potash Corp. of Saskatchewan; Herb Pinder, director of natural gas producer ARC Resources Ltd.; and Mr. Edmonstone, who left as executive director and deputy head of global oil and gas at Macquarie Group. in 2017.
“Cation was compelled to take this action given the significant destruction of shareholder value and the abject failure of current leadership across all aspects of the company including, capital allocation, shareholder alignment and basic principles of good corporate governance,” the firm said in a statement on Monday as it made the letter public.
Cation has a meagre 0.3 per cent of Crescent Point’s shares, but Mr. Edmonstone said that has not dissuaded other shareholders from voicing encouragement .
“There’s a lot of dissatisfaction out there with respect to shareholders and their views on the company. Quite frankly, you see it in the share price,” he said in an interview.
It’s hard to argue. Crescent Point has been under heavy pressure since its last, $660-million equity issue in 2016. Investors heaped scorn on CEO Scott Saxberg and his management team for frequent trips to the capital markets to fund acquisitions, issuing shares at lower prices each time.
Last year, the mere rumour of an activist investor amassing a position pushed the shares up 8 per cent. The rumour was, apparently, baseless, and the stock has fallen back.
Mr. Saxberg has stuck to a subsequent pledge to operate within cash flow and sell assets to bolster Crescent Point’s balance sheet, but investors are still wary.
Cation’s emergence prompted a smaller pop in the shares early on Monday, but Crescent Point closed down 2 cents at $9.15 on the Toronto Stock Exchange. That represents a drop of more than two-thirds in three years. The TSX capped energy index is down 21 per cent in the same period.
One problem for the activist is his lack of a well-honed new strategy should the new directors win board seats at the company’s annual meeting on May 4. Mr. Edmonstone promises a review of how to improve the way the company is operated and capitalized, rather than seeking specific assets or wholesale management changes.
“We want to review management performance; we want to realign the compensation structure to best-in-class practices; we want to refocus the executive performance; we want to take a look at the corporate structure to determine if the current model is the right model,” he said.
Mr. Edmonstone said he considers any notion that his proposed slate of directors is unqualified as “an insult.”
Crescent Point says it is well on its way to achieving objectives it spelled out in a five-year plan to weather the industry downturn, and believes the current directors help get it there. It blasted Cation for “flawed analysis and limited understanding of the business.”
“Crescent Point is offering a clear path to create shareholder value while Cation is attempting to orchestrate short-term tactical manipulations with no clear plan,” the company said.
The problem, so far, is neither side has lit a fire under the shares of a company that should be reaping the rewards of improving oil prices and ample shipping capacity. As a result, it’s very much a toss-up as to what the board will look like on May 5.
Jeffrey Jones