Letter to Shareholders Lays Out Continued Failures of Governance, Leadership and Accountability at Company
Cation Calls for Board Chair Bannister to Resign or be Replaced, and for Urgent Search and Appointment of Experienced, External CEO
Cation Will Host Town Hall Conference Call for all Crescent Point Shareholders to Express Concerns and Ideas Regarding their Investment
CALGARY, Alberta–(BUSINESS WIRE)–$CPG #CPG–Cation Capital Inc. (together with its affiliates and associates, “Cation Capital” or “Cation”), a private investment firm and shareholder of Crescent Point Energy Corp (TSX/NYSE: CPG) (“Crescent Point”), today sent a letter to fellow shareholders of Crescent Point outlining the ongoing value erosion of the Company’s share price and the continued issues of leadership and governance.
The full text of the letter follows:
September 4, 2018
Dear Fellow Shareholders,
Many of you have supported Cation Capital Inc.’s (“Cation”) initiative to drive change, stop the share price erosion and unlock value at Crescent Point Energy Corp. (“Crescent Point” or the “Company”). As fellow shareholders, we are compelled to provide you an update regarding the Crescent Point board’s continuing failure to create value for shareholders and its troubling pattern of engaging only with shareholders who support its failing leadership.
Since Cation went public with its campaign for change at Crescent Point, the Company has abandoned its so-called “Five-Year Organic Growth Plan” and has attempted to adopt some of our proposed initiatives. It has also announced that it is developing a “revised business strategy” focused on the balance sheet, capital allocation, cost reduction, return on capital employed and free cash flow generation, all of which our campaign identified as necessary to improve sustainability and debt-adjusted per-share metrics. Further, the Company has removed a large portion of its leadership team, including President and CEO Scott Saxberg, as well as the COO, the Senior VP of Corporate and Business Development, the President of Crescent Point Energy US Corp., and a VP of Finance, among others.
Yet, half-measures are clearly not sufficient. The Company continues to lack a strategy to create value, it continues to lack an experienced, independent CEO and most importantly it continues to be led by a board of directors that has proven itself incapable of – if even concerned about – creating shareholder value. Predictably as a result, the shareholders of Crescent Point continue to suffer near worst-in-class returns. Since Q1/18 results, Q2/18 results and the 2018 Annual General Meeting (“AGM”) and re-election of the board, Crescent Point’s share price has fallen -28.9%, -17.1% and -22.8%, respectively. During the same periods the S&P/TSX Energy Index has held approximately flat (-1.3%, -3.7% and +0.2%, respectively) while WTI prices have risen (+2.8%, +0.7% and +2.0%, respectively).
As we described in our letter to shareholders on July 25, 2018, Cation remains highly concerned with the lack of meaningful change in the Company’s governance, leadership and share price. We have made multiple, good faith attempts to engage the Chair of the board, Peter Bannister, on this matter. Mr. Bannister, however, has repeatedly declined to meet with us, including before the Company’s board meeting on July 25, 2018.
Mr. Bannister and the board’s unwillingness to engage with a significant shareholder on reasonable questions, concerns and suggestions has continued over the past 45 days. The board Chair persists in setting unreasonable, non-transparent conditions. For example, in a letter sent on August 13, 2018, he insists “that to engage in dialogue with Cation in person … first requires Cation to provide a detailed submission that contains productive ideas about how we can further improve Crescent Point, which ideas are not already under consideration by the board and management. We would expect those submissions to be made privately, as our interactions with all other shareholders are, and not as part of your ongoing public campaign.”
The Crescent Point board’s recent actions cast further doubt on their commitment to transparency and good governance. On August 8, 2018, Cation asked for clarification regarding the role that Mr. Bannister has played (or not played) in connection with corporate decision-making following the recent AGM on May 4, 2018. Mr. Bannister was unable or unwilling to confirm whether he was invited to, participated in, or was even present at the subsequent board meeting where a motion was made and passed for the termination of Mr. Saxberg, the President and CEO of Crescent Point. Given Mr. Saxberg’s well-documented entanglements with Mr. Bannister, as well as with other board members, the fact that Mr. Bannister did not answer this straight-forward question implies a number of very troubling concerns about governance at our company. Shareholders deserve transparency. More importantly, we deserve a board that looks out for our interests, not its own.
Cation’s last communication from Mr. Bannister was on August 15, 2018, when he wrote, “please be assured we are focused on creating long term shareholder value in this environment.” As we have noted, this statement rings hollow given the Company’s deplorable share price performance and metrics relative to its peers. If the focus all this time has been on creating long-term shareholder value, something has gone horrifically wrong. Why should anyone believe anything will change with the same leadership at the board? Given the magnitude of changes required at the Company in the very near term, our focus immediately turns to the lack of director accountability. Mr. Bannister’s tenure as a member of the board of directors will be 16 years at the next annual general meeting. With the pending retirement of Mr. Romanzin after a 15-year tenure, the obvious question is why is Mr. Bannister still on the board and what value does he add? It is very possible that any “newly revised business strategy” concocted absent the input of a skilled CEO is of no concern to Mr. Bannister, since he will likely not be around to answer for it. A strong board with an effective governance model would prevent this from occurring.
Cation promptly responded to Mr. Bannister’s last communication, privately requesting he immediately step aside as Chairman. We offered to discuss the merits of this in confidence, but Mr. Bannister has failed to respond. Shareholders are owed more from our board Chair and this board. The lack of share ownership by directors incents risk-taking without regard to the financial impact of negative outcomes. Shareholders deserve a new Chair who is financially aligned with the consequences of his or her decisions, who will lead and endorse a new strategy with confidence, and who will be accountable.
Despite the current board’s intransigence, we at Cation have no intention of backing down at a moment when Crescent Point requires change more urgently than ever. At this critical juncture, we believe and expect that the Company’s top three immediate priorities must be to:
|Recruit and appoint highly qualified, external candidates to fill the CEO and Chair roles;
|Immediately engage in a full asset-optimization process, including refocusing the asset base by disposing of 30,000 to 50,000 boe/d, thereby reducing debt to cash flow below 1.8x; and
|Rationalize capital expenditures and G&A, clearly establishing a corporate IRR hurdle rate that has to be met in order to expend capital and the implementation of an active share buyback program.
Cation is a long-term investor that is determined to unlock the stranded value within Crescent Point on behalf of all shareholders. We are committed to staying engaged and holding our board accountable. We have tried in earnest to collaborate with the board and to engage in constructive discussions before the board locks itself – and the Company – into another misguided strategy.
We have also identified highly qualified candidates for potential CEO and board roles. These individuals have unparalleled experience with energy majors, bring much needed diversity, have demonstrated cost reduction and capital allocation expertise, and have proven track records delivering superior shareholder returns. Given none have been contacted by any search firm about roles at Crescent Point, we fear this indicates a predetermined outcome of having an internal candidate fill the CEO role as well as resistance to refresh the board (which would also explain the board’s unwillingness to meet with Cation). We genuinely hope our board listens to its owners and makes the right decisions.
But, as we all know, hope is not a strategy. If the board fails again to convince investors that it has the plan and ability to deliver competitive returns, Cation intends to call for the Company to enter a full value-maximization process. The goal will be to unlock the significant value in Crescent Point’s 2P net asset value of $24.44 per share, as disclosed in the Company’s March 1, 2018, press release.
Cation has been contacted by many shareholders with their concerns about Crescent Point’s board and strategy and as such Cation will be convening a townhall conference call for shareholders. The call will provide shareholders an opportunity to finally speak openly with each other about the real issues they are facing with their investment in the Company and remove the Company’s ability to keep shareholders’ concerns to itself. Any shareholder that is interested in participating, should email firstname.lastname@example.org to receive the conference call details.
(signed) “Sandy L. Edmonstone”
Sandy L. Edmonstone
Cation Capital Inc.
About Cation Capital Inc.
Cation Capital Inc., together with its affiliates and associates, is a private investment firm headquartered in Alberta, Canada. Cation invests in situations where it is able to influence operational, financial and strategic direction. Cation seeks value in companies that are experiencing financial or operational challenges, are in out-of-favour sectors or are otherwise in need of change to drive significant long-term value for stakeholders.