Barry Critchley
National Post
March 25, 2009
About six weeks back, Ontario Teachers' Pension Plan Board announced it filed a Form 13F with U.S. regulators indicating at the end of 2008 it owned about 16 million Petro-Canada shares, enough for a 3.3% stake as the company's fourth-largest shareholder. Three months earlier, it owned 4.3 million shares.
In that Feb. 5 release, Teachers also "confirmed that it has held discussions with the management and board of Petro-Canada regarding the creation of shareholder value. Those discussions are continuing," said the release, which was interpreted as Teachers going activist.
The decision to purchase almost 12 million shares, a decision made within the fund's relationship-investing unit, which is part of its public-equities group, was a winner. The average price for Petro-Canada shares in the fourth quarter was $27.17 --meaning OTPPB spent at least $300-million on its investment. The shares closed yesterday at $34.01. The shares bought over that period -- we were told on Monday the period was when negotiations between Suncor and Petro-Canada were underway -- are now worth an extra $80-million.
With the benefit of hindsight, OTPPB's decision was a little unusual.
It marked just the second time it has become activist, at least in a broad sense. (The other was BCE, where it took its activism to a much higher level; it formed a consortium to take BCE private.) News releases back to 2004 are listed on its Web site. On none of them over that five-plus-year period is there any reference to becoming an activist in any other company.
Over the three-month period, Petro-Canada's share price was generally falling; it hit a high of $35.23 on Oct 1, 2008, and closed the year out at $26.72. (The low was on Nov. 20.) But to show how volatile the markets were, one week after hitting $20.83 the shares had rebounded to $34. It could be argued that pension funds, especially one like Teachers, which has to make substantial payments to retirees each year, aren't normally in the business of tripling their stake in a company whose share price is dropping like a stone.
Over this period, there was considerable speculation about the fate of the massive and unwieldy OTPPB-led takeover of BCE, because of perceived credit problems. As things materialized, the credit was available, but the deal was pulled because BCE didn't pass the solvency test.
Deborah Allan, OTPPB's spokeswoman, said it issued the 13F ruling with the added comment that it held discussions with Petro-Canada because "there was an awful lot of rumour going on," particularly news reports about what it was doing -- or planning to do.
"We weren't filing notice that we wanted to shake things up. We were filing notice that 'This is what are our holdings are.' We needed to set the record straight and used the 13F as the opportunity to do that."
Allan added that in her 3 ½ years at OTPPB, the fund has never issued a 13F with attached comments. "We are not generally public activists," she said, noting its relationship-investing group "takes major positions in publicly listed companies and works to increase the value on our members behalf."
Allan said the fund bought the Petro-Canada stake because "we are value investors." She said she was unaware of any other strategic investments made by the fund in the fourth quarter of 2008 and added she doesn't believe there was any connection between the announcements of Feb. 5 and March 23.
Material reprinted with the express permission of The National Post Company, a Canwest Partnership.