A U.S. activist hedge fund is pushing for an overhaul of Parkland Corp. PKI-T that might see the corporate’s refinery and fuel-distribution companies bought or spun-off to create a “pure play” gasoline and convenience-store retailer.

In a letter delivered to Calgary-based Parkland Wednesday morning, New York-based Engine Capital LP mentioned if the corporate’s board is unwilling to implement its suggestions, it ought to discover the sale of Parkland to non-public fairness or strategic consumers.

The funding firm additionally known as on Parkland so as to add new administrators to “strengthen” the board and to overtake its executive-compensation construction.

In an announcement, Parkland acknowledged that it obtained the letter and that it has been circulated with the board for “overview and consideration.”

“The corporate appreciates constructive shareholder enter and can present an replace sooner or later,” it mentioned.

Parkland’s share value closed up 9.7 per cent Wednesday to $32.05.

“Parkland in its present type doesn’t work as a standalone public entity,” Engine Capital’s managing associate Arnaud Ajdler wrote within the letter. “The established order can now not exist.”

Engine Capital, which has US$750-million in property underneath administration, mentioned it owns roughly 2 per cent of Parkland’s shares, a place it started to accumulate final yr.

How gasoline large Parkland is adapting to a low-carbon world

The corporate’s shares have been underneath intense stress because the begin of the pandemic as distant work led to fewer commuters on the highway. On the identical time, the corporate has confronted questions on its fossil gasoline publicity amid a world push towards a low-carbon economic system.

In contrast with Parkland’s inventory value peak in January, 2020, the corporate’s shares have fallen roughly 40 per cent.

In its letter, Engine Capital mentioned Parkland’s shareholder return has considerably underperformed that of each its convenience-store and refinery friends, which the funding firm mentioned displays Parkland’s “conglomerate low cost.”

The letter highlighted the “staggering” outperformance of Couche-Tard. That firm, primarily based in Laval, Que., has seen its shares climb greater than 50 per cent since January, 2020.

Parkland is Canada’s second-largest comfort retailer and gas-station proprietor after Couche-Tard ATD-T, working practically 2,000 shops in Canada underneath manufacturers akin to On the Run, Ultramar, Pioneer and Chevron, and lots of extra within the U.S. and the Caribbean. It additionally owns frozen ready meals retailer M&M Meals Market, which it acquired in early 2022.

As well as, Parkland owns an unlimited fuel-production and provide enterprise, together with a refinery in Burnaby, B.C., business propane distribution and gasoline advertising.

Engine Capital known as on Parkland to rent an funding financial institution to unload the refinery and its heating oil and propane-distribution companies. The funding firm proposed splitting Parkland into two public corporations, retaining the “higher-growth” retail enterprise for itself and spinning off the “lower-growth” refinery and fuel-supply enterprise.

Engine Capital estimated that primarily based on a valuation a number of of 8.5 instances earnings earlier than curiosity, taxes, depreciation and amortization (EBITDA) for Parkland’s retail enterprise, and 5 instances EBITDA for its refinery and fuel-supply enterprise, the corporate’s share value can be $45, a 55-per-cent premium.

“If Parkland desires to be valued like a pure-play gasoline and comfort retailer, it ought to merely develop into a pure-play gasoline and comfort retailer,” the letter mentioned.

Engine Capital additionally questioned whether or not numerous Parkland’s administrators are “able to appearing independently” given their “interrelationships” as administrators and executives at different corporations and prolonged tenures at Parkland. It famous that two of the 4 members of Parkland’s strategic initiatives and company growth committee have been on the board for a mixed 41 years, together with chairman Jim Pantelidis, who joined the board in 1999.

Engine Capital urged the board so as to add an unspecified variety of new administrators.

In a observe to shoppers, RBC Capital Markets analyst Luke Davis mentioned Parkland’s main shareholders are usually aligned with the corporate’s present technique and are usually passive, “although the important thing considerations outlined have been factors of competition for choose traders and will achieve some traction.”

This isn’t Engine Capital’s first foray into the convenience-store house. In 2016, it pushed for a strategic overview at CST Manufacturers Inc., a Texas-based chain, which led it to be acquired by Couche-Tard for US$4.4-billion.

A variety of Canadian corporations have confronted revolts led by activist traders. Final April, Elliott Funding Administration revealed it had a 3.4-per-cent stake in Suncor Power Inc. SU-T, and has been pushing for change on the firm. Suncor undertook a strategic overview of its Petro-Canada gas-station unit, however in the end selected to not promote the chain.

Nevertheless, Elliott is slated to nominate a fourth director to Suncor’s board this month after the power firm failed to satisfy sure efficiency standards specified by an settlement final yr.

Earlier this month, Parkland chief government Bob Espey mentioned the corporate wouldn’t proceed with a $600-million plan to construct a standalone renewable diesel undertaking at its Burnaby refinery, citing the U.S. Inflation Discount Act and its in depth subsidies for U.S. renewable-diesel producers.

Throughout a name with analysts to report Parkland’s fourth-quarter outcomes, Mr. Espey mentioned the corporate has “delivered on the commitments that we made to our shareholders,” together with assembly its steering and repurchasing $40-million of shares over the previous yr.