Parkland’s board of directors recently received a letter from investor Engine Capital pushing for Parkland leadership to announce “additional value-enhancing initiatives and further highlight the value of the business at Parkland’s upcoming analyst day.” Engine Capital currently owns approximately 2.5% of Parkland’s outstanding shares.

Engine Capital recommends refining Parkland’s capital allocation framework, aligning management compensation to shareholders’ interests. The investor also urged Parkland’s board to optimize company operations to increase long-term value.

The investor also commended Parkland’s board of directors for the recent steps it has taken to unlock shareholder value, which include:

• Refreshing the board by adding two shareholder representatives and facilitating the departure of the three longest-tenured directors (including the prior chairman).
• Simplifying the business with the announcement to monetize $500 million of Parkland’s non-core assets by 2025.
• Enhancing the profitability of the core business with the announcement of $100 million of cost savings and efforts to unlock synergies from past acquisitions.
• Maximizing free cash flow and deleveraging the balance sheet.

However, Engine Capital still believes that Parkland is “deeply undervalued,” according to the letter. The investor urged Parkland to continue with the following steps:

1. Communicate Parkland’s long-term cashflow opportunity — Engine Capital predicts that Parkland will conservatively generate approximately $10.5 billion of Adjusted EBITDA and roughly $5.1 billion of maintenance free cash flow over the next five years (2024 to 2028). Parkland is also projected to receive proceeds of $500 million from non-core asset sales, for a total of $5.6 billion of deployable capital. With these high numbers, Engine Capital believes Parkland should communicate its longer-term forecast.
2. Develop and communicate a precise long-term capital allocation framework — Given the free cash flow of Parkland’s business, Engine Capital requested that the board be “explicit and precise with its capital allocation framework.” The investor noted that Parkland’s current priority is to optimize the current portfolio, while also demonstrating its organic growth potential, which it assumes will take two years. Engine Capital also urged Parkland’s board of directors to abstain from mergers and acquisitions during that time. Instead, funds to the sum of $800 million should be allocated for share repurchases, the letter stated.
3. Further refine Parkland’s compensation framework to align management incentives with shareholders’ interests — Engine Capital stated that Parkland’s compensation structure is “fundamentally flawed and has the potential to incentivize bad behavior.” The investor urged Parkland to immediately correct the structure by excluding acquisitions when considering annual incentive compensation.
4. Announce an additional $100 million of cost savings by 2025 and commit to higher ROIC target — While the investor commends Parkland on the recent implementation of a $100 million cost restructuring, it believes that there are other opportunities to streamline the cost structure. Engine Capital believes that there is an additional $100 million of cost savings available to Parkland and calls on management to give the financial community visibility into these opportunities.
5. Continue to focus on simplifying the business and divesting non-core assets — Engine Capital believes that Parkland needs to go further than its previous act of monetizing $500 million of core assets. The investor believes there are additional non-core assets that can be monetized.