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Activist hedge fund Elliott Management has asked Duke Energy to consider splitting into three separate companies, launching its first public bailout in a campaign to overhaul one of the top utility companies in the United States.
Elliott said he had taken an unspecified stake in Duke, which supplies electricity to 7.8 million people across the southeastern United States and Midwest, and in a letter to management Monday accused them of “building the ’empires’.
“Based on our extensive analysis of Duke’s business, we believe Duke should conduct a thorough and impartial review of a tax-free separation into three utility-focused portfolio companies in the region: Carolinas, Florida and the Midwest, ”Elliott’s wrote. Jeff Rosenbaum, senior portfolio manager, and Jesse Cohn, managing partner.
Elliott, the $ 42 billion fund whose recent activist campaigns have led BHP, SoftBank and Whitbread, among others, said the review should be led by an independent council committee, including new independent directors. with the assistance of external advisors.
The hedge fund did not disclose the size of its stake in Duke, which was initially reported by The Wall Street Journal. But he said he was an investor in the top ten.
Duke said he would review the proposals, which he said were the last in the series Elliott had submitted since July 2020.
“Throughout everything, Duke Energy’s board of directors has reviewed its proposals in depth and determined that they are not in the best interests of the company, its shareholders and other stakeholders,” Duke said.
It also affected the “decidedly mixed results” of the hedge fund in the utilities sector, where it has previously participated in Sempra Energy, FirstEnergy and Evergy.
“The share prices of these utility companies have come down materially from the sector so far since Elliott was involved, setting an unenviable track record of destruction of value for shareholders,” Duke said.
Aggressive public exchange portends a struggle to influence shareholders over the merits of Duke’s strategy and performance under long-standing leadership Lynn Good.
Elliott argued that despite having a first-class utility portfolio, the company had suffered “numerous operational setbacks and erroneous investments and strategic steps over the past decade, at a significant cost to both shareholders and customers.” .
Among the “wrong steps” Elliott cited was the cancellation of the Atlantic Coast Pipeline, a 600-mile pipeline that is being developed in conjunction with Dominion Energy. The project collapsed last year after a series of legal delays and challenges, costs skyrocketed. It resulted in a $ 2.1 billion amortization by Duke.
Elliott also noted the cost of a 2014 coal ash spill and what he said was Piedmont’s “excessive” acquisition of natural gas in 2016.
The company, Elliott said, “has focused more on increasing its footprint and portfolio than on operational execution and prudent investment, leading to perceptions among those following the company that Duke is” building empires. ” at the expense of shareholder value “.
A split could create between $ 12 billion and $ 15 billion in “short-term vision value” for shareholders, according to the hedge fund.
Duke shares rose 0.7 percent in a falling market on Monday. Last year, the company turned down a merger offer from NextEra Energy, a Florida-based power and electricity producer, according to someone familiar with the discussions.
Duke’s move is Elliott’s second major participation piece to come to light in just over a month. The hedge fund has also created a multimillion-dollar stake at GlaxoSmithKline, setting up a potential battle for the future of the UK drug maker after it outperformed its peers and lagged behind in the race to develop a Covid-19 vaccine.
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