Lekto says Encana's move will trigger a wave of Canadian selling
One of Encana Corp.’s largest shareholders is reiterating its opposition to the oil and gas company’s planned exit from Canada.
“We strongly oppose the proposal to change the situs of incorporation to the United States seeing no benefit in doing so while forcing Canadian holders to sell their shares at a loss,” Letko, Brosseau & Associates Inc. said in a release late Thursday. “We see this proposal as bad corporate governance.”
The Montreal-based investment firm’s detailed argument against Encana’s plan to re-domicile and change its name to Ovintiv is rooted in a view that the move is “highly unlikely” to widen the company’s shareholder base, as Encana has cited as its motivation.
“Upon leaving Canada, approximately 100 million shares currently held by Canadian index funds would need to be sold with a further 86 million shares to come out of global indexed funds for a total supply of close to 186 million shares,” according to Letko, which has an approximate four-per-cent stake in the company.
“[Encana] speculates a billion -dollar plus demand equivalent to 250 million shares over the following year from U.S. index funds. However, the take up would not be immediate and it is not clear that Encana shares would qualify for these U.S. indices.”
Brian Madden, senior vice president and portfolio manager at Goodreid Investment Counsel, said he commends Letko for calling out the company’s plan to relocate.
“I think the argument they make is a good one,” he told BNN Bloomberg Friday morning.
“I think this whole re-domiciling of Encana is just a disgrace. It’s a total abdication of the management team’s responsibility for actually creating shareholder value via growth, production, cash flow, earnings, managing the balance sheet sensibly, not blowing their brains out on expensive mergers and acquisitions.”
Letko first expressed its opposition to Encana’s plan earlier this month, arguing the move would guarantee forced sales and significant losses for Canadian investors. In response, CEO Doug Suttles defended the decision to re-domicile, saying he believes the move “ultimately will be positive for all shareholders.”