LONDON, Aug. 14, 2017 /CNW/ - M&G Investments ("M&G") manages funds owning approximately 19.4% of the outstanding shares of Gibson Energy Inc. (the "Company").
M&G announces that today, it delivered a letter to James M. Estey, the Chairman of the Board of Directors of the Company, discussing M&G's views of the Company, specific measures the Company should take to improve the business and requesting that the Company undertake a strategic review of all options to maximise its value.
The full letter is replicated below.
M&G is a leading international asset manager with a long-term, active approach to investing. Headquartered in London, M&G manages over US$365.6 billion in assets across equities, fixed income, real estate, multi asset and infrastructure (as at 30 June 2017). M&G is the investment arm of Prudential Plc in the UK and Europe.
The Toronto Stock Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of this release.
14th August 2017
Mr. James M. Estey
Chairman of the Board of Directors
Gibson Energy Inc.
Suite 1700, 440 - 2nd Avenue S.W.
Canada T2P 5E9
Re: Gibson Energy Inc. ("Gibson" or the "Company")
I am writing to you on behalf of M&G Investment Management ("M&G" or "we"). M&G currently manages funds owning approximately 19.4% of the outstanding shares of Gibson.
We have participated in a long-term, ongoing private dialogue with the Company, principally through you, as Chairman of the Board of Directors. We have long communicated our concerns about the Company's management since its IPO and our view that a more focused and strategic approach by management would benefit the Company and its shareholders. Despite trying to apply significant pressure behind the scenes for over 2 years to try and effect change, we have been disappointed with the pace of progress. During the course of 2016, we communicated to you our dissatisfaction with the existing management team and its strategy. We are pleased to see the recent announcement of the new CEO, Steve Spaulding.
It is clear to us when we communicate with industry analysts, the Company's competitive peer group and other investors that there is confusion around the long term strategy for the Company. Therefore as the Company's largest shareholder, we feel it is necessary to communicate publicly our vision for the business.
We believe that the Company should focus on its core infrastructure assets based around the Western Canadian Sedimentary Basin, namely the terminals in Edmonton and Hardisty. In our view, these are the crown jewels of the Company partly due to their reliable and growing cash flow streams, but also for their strategic value and enormous replacement cost. These assets are incredibly difficult to replicate. The Company has also demonstrated a successful capability of deploying growth capital to this area at very attractive returns and we would encourage further organic investment in these core infrastructure projects.
We also believe the Company is capable of generating additional cash flow from services based around these assets and this should be continued as long as they are genuinely synergistic and can be maintained and grown in an effective and capital light manner.
We are pleased with the recent announcement to divest all US Environmental Services and encourage the Company to execute on this announcement. We believe that the Company simply has neither the strategic footprint, nor the appropriate cost of capital to compete effectively in the US. We understand that the injection station assets and associated trucking business have been significantly under-earning due to a lack of flexibility imposed on the Company by long term contracts. As these contracts are due to expire very shortly, we are in agreement with management's intent to restore these assets back to their full earnings potential. However, we firmly believe they are still not central to the overall core proposition of the Company and should ultimately be divested at an appropriate value when their potential has been realised. The proceeds should be used to either retire debt or be reinvested in high return infrastructure investments.
Building on this premise, our vision for the business is based on the following:
- The Company should sell the Moose Jaw refinery and its affiliated lines of business and use the proceeds to either reduce debt or reinvest in high return infrastructure investments.
- The Company should exit all lines of its trucking business that are not associated with the core infrastructure assets of the Company.
- We expect the Company to make significant progress in reducing its cost structure.
- We support the dividend policy of the Company and believe the current dividend is fully funded by the infrastructure cash flow growth profile going forward.
After the completion of the steps outlined above, we believe the Company should commence a strategic review of all options to maximise value, including the sale of the Company, with the help of an independent investment bank. We believe that a streamlined and focused company based around core strategic assets would be an attractive asset to a wide variety of potential suitors. If the market is not going to give the Company the appropriate valuation we think it deserves, then we are confident the value can be realised by a sale process.
We welcome a continuing dialogue with you and the other directors of Gibson on the matters discussed in this letter, and we look forward to hearing from you and the Board of Directors regarding the steps we outlined above. However, if the Company fails to implement the above strategy, we may need to re-examine our support for the Company.
(signed) "Stuart Rhodes"
M&G Investment Management
SOURCE M&G Investments
For further information: Rupert Krefting, +44 (0) 203 790 1867