TransCanada Corp., the Canadian pipeline giant, could be the next target for activist hedge funds such as Third Point, led by Daniel Loeb.
Based in Calgary, TransCanada is best known as a proponent of the controversial Keystone XL pipeline that would run from Alberta to Texas. Though the project is overwhelmed by setbacks, including increased costs (it’s possible that the overall cost could double from the estimated $5.4 billion if the US government approves the project), TransCanada stock is still going strong, gaining 3.31% and reaching $60.81 in Toronto last week.
However, the financial world is abuzz with rumors that some of TransCanada’s largest shareholders have been contacted by hedge funds wanting to begin a breakup campaign to boost value. For example, New York-based Mason Capital met with TransCanada shareholders two months ago to discuss splitting its pipeline and power-generation assets, putting some in a US-based tax-saving structure called a master limited partnership.
“You are going to see more U.S. investors like ourselves, Third Point, and others, who will take larger and more dynamic positions in Canada, especially given the [share] weakness, because Canada has a phenomenal resource base, it’s low risk, and as we go forward the demand side of the curve is going to be increasing,” said David Neuhauser, managing director of Livermore Partners, an energy-focused hedge fund in Northbrook, IL.
There has been no official comment from TransCanada on the possible hedge fund breakup campaign; in fact, the company has focused on promoting its current structure. “TransCanada has a well-defined strategic plan in place to increase long-term shareholder value,” said spokesman Shawn Howard. “We are focused on continuing to deliver on this plan successfully.” He further stated that TransCanada believes its current corporate structure maximizes profits and shareholder returns.
Whether or not Daniel Loeb or other activist hedge fund investors will succeed in restructuring TransCanada remains to be seen.