Spectra Energy Corp.’s (SE) recent announcement that it would accelerate dropdowns to Spectra Energy Partners (SEP) did not placate activist investor Sandell Asset Management, which has called again for further action and threatened to seek changes to the company’s board.
Sandell CEO Thomas E. Sandell wants Spectra to consider alternatives for its Westcoast Energy Inc. operations in Canada, as well as for its DCP Midstream LLC, in addition to cutting costs across the board to boost efficiency and profitability (see NGI, June 17).
“…[W]e believe that SE has an intrinsic value of $48 per share, or more than 40% over its current price, which we believe would be realized if you and the board fully embrace and execute the additional steps we have outlined, transitioning SE into a pure GP HoldCo entity,” Sandell told Spectra CEO Greg Ebel in a letter in May and outlined in a whitepaper. “Indeed, existing GP HoldCo entities such as Williams Companies Inc. (WMB), Kinder Morgan Inc. (KMI), and Oneok Inc. (OKE) trade at a premium valuation as strategic allocators of capital in the fast-moving, competitive North American energy infrastructure landscape.”
Sandell is proposing an initial public offering (IPO) of Westcoast, which would, in part, “highlight the premium valuations and lower cost of capital afforded to Canadian infrastructure companies…” For DCP, Sandell is proposing a sale/dropdown or an IPO. “We believe there is both strategic and financial interest in SE’s DCP stake as well as the potential to highlight the value of DCP’s MLP-qualifying income through an IPO,” he said.
“…[W]e believe that the imperative for taking all the proactive steps in our plan is made stronger by SE’s poor relative shareholder returns versus peers, underperforming by 40%-plus over the past three years, even after giving effect to the announcement of last week,” Sandell said in its letter. “This performance is in stark contrast to CEO compensation, which has consistently ranked at the top amongst CEOs of the same peer group, demonstrating a complete lack of alignment between executive compensation and shareholder returns.”
An SE spokesman last Friday told NGI that the planned dropdowns will make SEP “one of the largest MLPs in the U.S. and provide dividend and distribution increases to investors in both companies. Management and the board believe that the size, scale and strong balance sheet that result from our C-Corp. and MLP structure are significant drivers supporting Spectra Energy’s successful execution of the more than $25 billion in natural gas expansion opportunities and also the significant incremental crude oil growth opportunities ahead.”
Sandell has formed a shareholder group and is one of SE’s largest shareholders. “…[S]hould you fail to promptly take all the steps to maximize shareholder value as we have outlined in our plan, we intend to pursue a change to the composition of the Board at the next annual meeting,” Sandell told SE.
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