M&G leans on Gibson Energy

Gibson Energy’s largest shareholder, London-based M&G Investments, has given the company a list of demands it says will enhance shareholder value, or it will not support the re-election of a slate of directors at the next annual meeting.

M&G is asking the Calgary-based company to focus on its core infrastructure assets, to sell some of its other assets, and to develop a clear strategy that’s fully understood by the market. The goal is to have Gibson return to a pure infrastructure company and get a fresh look from the analysts.

The investment firm would also like to see Gibson perform a strategic review, designed to enhance shareholder value. M&G has a 19.4-per-cent stake in the company and is part of Prudential PLC, which has US$365 billion under management.

M&G said it has spent more than two years “trying to apply significant pressure behind the scenes.” It says it is disappointed with the pace of progress, other than the company hiring a new chief executive — Steve Spaulding was named CEO in June to replace Stew Hanlon — and agreeing to divest its U.S. Environmental Services business.

M&G doesn’t regard itself as an activist. It doesn’t want board representation nor does it want to launch a proxy battle. It wants a leaner, more-focused company and Monday’s message was designed to keep the pressure up.

The request to speed up the pace of progress comes a few months after Gibson held its annual meeting, at which all directors received at least 98-per-cent support from the shareholders who voted.

At least one analyst, Robert Kwan, from RBC Capital Markets was positive on what M&G has proposed. “We see this letter as providing a catalyst for improvement in the share price,” he said in a note to clients. Kwan has a $20 target on Gibson.

Two weeks back after a session with senior Gibson management, Kwan said he had “greater comfort with the path forward,” because three things were clear: There were no plans to cut the annual $1.32-a-share divided; the focus would be on infrastructure growth in Canada and large-scale M&A seemed “very unlikely.”

But given the announced plan to divest part of its U.S. business, Kwan reduced his estimates for Gibson.

Kwan is one of the 16 analysts who cover Gibson. Of the 16, 10 rate it a hold and six it a buy with the average one-year target price being $19.55.

In its time as a public company, Gibson has generated an average annual total return of 6.32 per cent — which is above the return for the sector and market. All those gains occurred in the first three years.

In a statement, Gibson said it was confident it was on the right track to create “significant long-term shareholder value” by focusing on its “core infrastructure business.” The company added that an ongoing review by the new CEO, “which will include a focus on cost efficiencies and the possibility of further asset divestures, will further enhance the company’s strategic focus.”

Hopefully, a clearer picture will emerge. If not, M&G may be required to issue a second keep-thepressure-on message.

A FOCUS ON COST EFFICIENCIES AND THE POSSIBILITY OF FURTHER DIVESTURES.