Proxy fight focuses on tax benefits and spin-off of power business
Activist investor Sandell Asset Management has launched an attack on the management of TransCanada, insisting the company spin off its power business and take better advantage of tax benefits to ‘immediately’ increase its share price by at least 32 percent.
The hedge fund, managed by billionaire activist investor Thomas Sandell, has called on TransCanada, the company aiming to build the controversial Keystone XL pipeline, to change the way it communicates its cash flow metrics in order to highlight its ability to pay a dividend.
Sandell, CEO of the hedge fund, says TransCanada could benefit more from tax advantages under its publicly traded master limited partnership (MLP) TC PipeLines, which has given TransCanada some tax advantages by transferring a number of US assets to it. He also insists in a letter to TransCanada that the company spin off its power business.
‘We are disappointed the company has neither fully embraced the MLP structure nor emphasized cash flow metrics such as adjusted funds from operations to highlight the company’s ample tax assets, low maintenance capital requirements and capacity for dividend payment,’ Sandell writes. ‘Furthermore, we believe a spin-off of the energy segment is the best long-term course for this asset to attract a world-class, dedicated management team.’
Taking the steps he outlines, Sandell adds, would ‘immediately’ increase the company’s share price from its current C$57.50 ($51) to its ‘intrinsic value’ of C$75.
TransCanada has called Sandell’s analysis ‘flawed’ and says it plans to deliver better value to shareholders through a multi-step plan that includes maintaining financial flexibility, transferring its entire portfolio of US natural gas pipeline assets into TC PipeLines and maximizing performance of its energy assets.
‘We have a well-defined strategic plan to increase long-term shareholder value, including our strong focus on pipelines and power generation opportunities, and we remain focused on continuing to deliver on this plan successfully,’ the company says in a note to investors on its website.
