Renegade Petroleum (RPL:TSX), the Saskatchewan-focused light oil producer, has called a special shareholder meeting as part of an ongoing dispute with an activist shareholder, FrontFour Capital Group LLC. The news release today is in response to a release issued by FrontFour on October 31, 2013 in which the activist outlined their concerns. The meeting will be held on January 28, 2014 and the company will mail out an information circular in advance. FrontFour wants the opportunity to replace the board with a new slate of directors.
According to FrontFour and another un-named shareholder, who together hold 5% of RPL shares, “Renegade’s board and its advisers continue to deplete the company’s cash resources while the shares remain near an all-time low,” said Zachary George, co-founder and manager of FrontFour. Zachary George is the son of Rick George who is currently the chairman of Penn West and formerly the CEO of Suncor.
Typically, in these situations, the real issue is that the market is not valuing the asset base correctly and blame is being allocated by individuals with different interests; management’s interests are to manage the company and its assets and FrontFour’s are to maximize returns for their investors given a certain time horizon. As outlined by an analysis completed by FrontFour in which they used a precedent transaction to highlight the implied value of RPL : “the price per share of Renegade implied by the Acquisitions is $1.43 to $3.88 depending on the respective metric utilized, representing a potential shareholder return of approximately 30% to 252%.”
Most of the issues FrontFour has with current leadership at RPL surround the fact that last year RPL closed a $405 million deal to buy 3,600boepd from Penn West and introduced a $0.23 dividend. By April of this year, the company announced it had hired a slate of bankers to complete a strategic review of the company including an outright sale and by July, the dividend had been cut to $0.10 and the company was selling non-core assets. Given it is a buyer’s market for Western Canadian oil assets, management may elect to expedite the sales process and re-evaluate prior bids.
It is important to note, that on September 27 of this year, Renegade completed its Annual General Meeting whereby the board was re-elected by its shareholders. Although this appears messy, these types of events can be followed by appreciating stock prices. The assets of RPL are clearly being undervalued by the market for some reason. Whether that reason is due to inefficient leadership is yet to be determined (and may never be determined, depending on the outcome of the January 28th vote).
Here’s the cause of dissident shareholders – the 1-year on RPL: