Activism In The Great White North Featuring West Face Capital by Activist Stocks

As you already know from the daily newsletter, West Face Capital went active on Gran Tierra Energy earlier this week. The Canadian fund owns 9.8% of the Canadian-based energy company. Now, 92% of Gran Tierra’s reserves are in Colombia, with the rest in Brazil, so it’s not really a Canadian company.

In any case, West Face Capital and one of the partners Tom Dea want to get get a new CEO in place. It’s candidate? Gary Guidry. The plan also includes replacing the four-person board with six of West Face Capital’s nominees.

Now Gary’s last gig was at Caracal Energy (an oil company in Chad), where he stepped in after the CEO died in a boating accident. Turns out, Gary uncovered the fact that the company was bribing Chadian officials. He blew the whistle on his own company, paid a $10M fine and then got a company sold to Glencore shortly after. The stock was up 100% while he was there, versus something like 10% for the TSX index. Side note – it’s worth noting that four of the five other directors (excluding Gary) were also Caracal directors.

From Tom Dea – “The last four companies in which Gary has been the CEO have averaged a 45% annualized return to shareholders over multiple market cycles and multiple operating jurisdictions.”

The issue at Gran Tierra has been a reckless exploration frenzy, where the company has been blowing money with nothing to show for it. The company spent over $850 million since the start of 2011 on trying to find new reserves in Brazil and Peru, but failed. The stock is down 60% over that time.

Now, its CEO stepped down in Feb., but the interim CEO is just lollygagging when it comes to laying out a strategy going forward. West Face Capital wants to get in there before management has a chance to soil its debt free balance sheet and blow through the cash (of which it has enough to cover a third of its market cap). The value in the company lies in its recoverable and producing assets in Colombia. Look for M&A to be focused there if West Face Capital gets its way. No reason to suggest they won’t. There’s a number of other frustrated shareholders and management is in limbo. West Face Capital is the same activist that took on Maple Leaf Foods in an effort to wrestle it away from the grip of the McCain family. They started out with the stick and then used the carrot and befriended CEO Michael McCain. Shares were up nearly 70% over the three and a half years it owned the stock.

Gran Tierra Energy West Face Capital