Parkland Corp. shareholder Engine Capital LP said it will withhold support on all incumbent board directors at a meeting of shareholders in May. This comes less than a month after the activist hedge fund called on the Calgary, Alberta-based fuel and convenience-store company to become a more focused fuel and convenience retailer.
Engine Capital, which holds 2% of Parkland’s outstanding shares, said Parkland’s decision to re-nominate its “over-tenured chairman” and compensation practices reinforce the need for change. Chairman Jim Pantelidis has served on the Parkland board for 24 years, and he intends to serve on the board for another three years until the 2026 annual meeting, an April 20 letter from Engine Capital managing partner Arnaud Ajdler and partner Brad Favreau said.
- Parkland USA is No. 37 on the 2023 Top 40 update of CSP’s 2022 Top 202 list ranking of U.S. convenience-store chains by store count.
This decision is “shocking” considering that Parkland recently adopted a tenure policy that limits a director’s tenure to 10 years, the partners said. The policy should apply to all directors, including the chairman, they said.
“Clearly an orderly transition and appropriate succession planning can take place much faster. The fact that the board is suggesting Mr. Pantelidis needs to remain as chairman for another three years in order to effectuate a smooth transition is another example of the board’s complete lack of urgency. We therefore urge the board not to re-nominate Mr. Pantelidis at the 2024 Annual Meeting,” Ajdler and Favreau said in the letter to Parkland’s board.
While they plan on withholding support for incumbent directors at the upcoming May meeting, Engine Capital intends to vote for the two new nominees that Parkland allowed long-term shareholder Simpson Oil Ltd. to name.
Parkland shared in a statement with CSP Daily News that as it progresses toward its annual and special meeting of shareholders on May 4, it has support from its proxy advisory firms for all matters to be raised at the meeting, including for the election of its directors and say on pay. It also said it appreciated the support received from its other shareholders.
“Parkland has a Board of Directors with the diverse skills, expertise and perspectives we need,” Parkland said. “Together with the management team, the board is committed to acting in the best long-term interests of the company and all its shareholders. 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.”
In its April 20 letter, Engine Capital also said it was concerned by Parkland’s compensation practices. Engine Capital referenced a recently published management information circular that discussed the board’s decision to use an absolute return on invested capital (ROIC) measure as part of management’s long-term incentive. Engine Capital said while that makes sense, the targets set by the board are “completely inadequate and are lower than the company’s cost of capital.”
It also called out Parkland CEO Robert Espey’s total direct compensation, which was $3.2 million in 2018 and $5.3 million for 2022, according to Engine Capital.
“Since 2018, Mr. Espey’s compensation has increased by 66% while the stock is down. It is no wonder Parkland’s management likes the size and the complexity of the business,” Ajdler and Favreau said.
Engine Capital asked to meet with the Parkland board as soon as possible to discuss changes they think are necessary to improve the company. It met with Parkland’s CFO Marcel Teunissen on March 30 but still would like to engage with the board, Engine Capital said, accusing the board of hiding behind its CFO.
“This lack of responsiveness and sense of urgency is in stark contrast with shareholders’ desire for change and frustration, evidenced by the nearly 10% increase in Parkland’s share price following the release of our letter on March 22,” Ajdler and Favreau said. “The fact that the mere possibility of a change in strategy suggested by a significant shareholder could cause this type of positive price movement speaks volumes to shareholders’ frustration with the status quo and desire for change.”
Parkland said it regularly meets with its shareholders, including Engine Capital, which it has engaged with frequently over the past several months.
Requests for Change
In its March 22 letter to Parkland’s board, Engine Capital asked the company to consider all strategic alternatives, including evaluating a sale or spinoff of non-core assets, to become a more focused fuel and convenience retailer.
Parkland has been unable to translate its advantaged strategic position and quality assets into adequate returns for shareholders with total shareholder returns (TSR), trailing peers like Alimentation Couche-Tard, Laval, Quebec, which owns the Circle K c-store chain, the partners said at the time.
Its recommendations were for Parkland to:
- Immediately start exploring all strategic alternatives, including evaluating the sale or spinoff of non-core assets with the goal of becoming a more focused fuel and convenience retailer.
- Refresh the board of directors and add directors with convenience merchandising and capital allocation experience.
- Improve the company’s compensation framework to better align management’s incentives with shareholder’s interests.
Parkland Corp., Calgary, Alberta, is the parent company of Parkland USA, Charleston, South Carolina, which has c-stores under several brands, including On the Run.
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