Dive Brief:

• Activist hedge fund Engine Capital, an investor in Parkland Corp., is once again pressuring the retailer to reorganize its corporate structure, this time threatening to withhold support on all incumbent directors up for re-election at Parkland’s 2023 annual meeting May 4, according to a letter sent Thursday to Parkland.
• In the letter, Engine Capital said Parkland has ignored requests to split its c-store and fuel segments into two businesses, and criticized the retailer’s policies on director tenure and executive compensation.
• Engine Capital’s ongoing criticism of Parkland began in late March with its request for the retailer to split its business models. The next day, Parkland said it would let Simpson Oil, its largest shareholder, designate up to two nominees for election to Parkland’s board of directors at the next annual meeting.

Dive Insight:

Despite the increased pressure, Parkland isn’t budging. In response to Thursday’s letter, Parkland said it has the support of its advisory services for the election of its directors and compensation policy ahead of the May 4 meeting, as well as support from its largest shareholder regarding its directors and overall strategy, a spokesperson from Parkland said in an emailed statement.

“Together with the management team, the board is committed to acting in the best long-term interests of the company and all its shareholders,” the spokesperson said. “This includes an ongoing board refreshment process with the nomination of two new independent directors at the upcoming AGM and the retirement of two of our longstanding directors.”

Although Engine Capital intends to vote in favor of Simpson Oil’s two nominees, the hedge fund still plans to withhold support for all current directors at Parkland due to “dissatisfaction with the status quo,” according to the letter. Engine Capital is notably unhappy that Parkland has re-nominated 24-year tenured Chairman Jim Pantelidis, despite the retailer’s recent adoption of a 10-year term limit, according to the letter.

Regarding Parkland’s compensation practices, Engine Capital said the retailer’s target returns on invested capital “are completely inadequate” and “lower than the company’s cost of capital.” A lower ROIC than cost of capital indicates a company is losing value. Additionally, Engine Capital expressed concern that since 2018, CEO Robert Espey’s compensation has increased by 66% despite the stock price falling.

“We intend to monitor developments at Parkland closely and will not hesitate to take any actions that we believe are necessary to protect the best interests of all shareholders and stakeholders,” Engine Capital said in its letter.

Parkland’s share price has increased 10% since Engine Capital’s first letter in March, which it believes shows that shareholders approve of its proposed changes, according to the announcement. In its statement, Parkland said it “will continue to constructively engage with all shareholders, including Engine Capital, in the weeks and months ahead.”

With 1,860 stores in its Canadian network, Calgary, Alberta-based Parkland is the largest independent fuel retailer and second-largest c-store operator in Canada. In the U.S., Parkland supplies fuel to independently owned gas stations and operates 212 c-stores under a variety of banners, including On the Run, Hart’s, Superpumper, KB Express and more.