Calgary-based Suncor Energy announced that it has formally agreed with Floridian hedge fund Elliott Investment Management to sell Petro-Canada, the former’s chain of gas stations.
Petro-Canada currently has 1,600 locations throughout its network, so it is estimated that Suncor stands to receive approximately $8.9 billion post-taxes from the sale.
Last July 8th, Suncor CEO Mark Little announced his resignation from the company following a fatal accident involving a worker at the company’s Base Plant mine in Northern Alberta.
Company executive vice-president for downstream operations Kris Smith is acting as interim CEO while searching for a more permanent replacement at the helm.
Feeling the Pressure
Earlier this year, Elliott Investment demanded that Suncor do a strategic review of its assets in light of numerous safety issues, some of which were fatal for those involved.
The Petro-Canada chain’s recent dismal financial performance compared to its competitors also prompted Elliott executives to call for a change in Suncor’s management board.
A Major Payout in the Works
Based on estimates by Credit Suisse, the sale of Sunco’s downstream retail business can bring in $9.6 to $11.2 billion before taxes. As a result, post-tax profits may range between $7.7 and $8.9 billion.
According to Credit Suisse analyst Manav Gupta, Suncor may go the way of Ohio-based fuel company Marathon Petroleum if it opts to sell its retail business. In which case, the proceeds from the sale will primarily go towards supporting higher shareholder returns.
This was the case with Marathon, which, like Suncor, was pressured by Elliott Investment to improve its overall service performance and to sell its retail holdings two years ago.
In 2020, Tokyo-based diversified retail group Seven & I Holdings Company, the firm behind 7-11, the world’s biggest convenience store chain, bought Marathon’s gas station network for approximately $21 billion. The company has since expanded the gas station chain’s coverage to include an additional 4,000 locations throughout the United States.
What Comes Next?
According to a plan published on the website RestoreSuncor.com, Elliott investment expects to unlock over $30 billion in value for both existing and new shareholders.
Last July 18th, Suncor agreed to bring three new directors onto its board. The company is also set to form a committee that will review its downstream businesses.