Funding for hedge activist Elliott Management has called on Duke Energy to consider splitting into three different companies, firing the first public salvo in a campaign to embarrass one of the U.S.’s most expensive equipment.
Elliott said it had taken an unspecified stake in Duke, which empowers 7.8m people across the southeast and Midwest in the U.S., and in a management letter on Monday accused them of “building the empire “.
“Based on our extensive review of Duke’s businesses, we believe Duke should conduct a thorough, impartial review of a tax-free separation of the three public-focused, publicly traded regions. utility holding companies: the Carolinas, Florida, and the Midwest, ”wrote Elliott’s Jeff Rosenbaum, senior portfolio manager, and Jesse Cohn, managing partner.
Elliott – the $ 42bn fund whose campaigns for activists are targeting BHP, SoftBank and Whitbread, among others – said the review should be led by an independent board committee, including new independent director, with the assistance of outside consultants
The hedge fund did not disclose how much its stake was on Duke, which was first reported in The Wall Street Journal. But it is said to be a top-10 investor.
Duke said it will review the proposals, which it says is the latest in a series Elliott will be showing from July 2020.
“On the whole, Duke Energy’s boards of directors reviewed their proposals in depth and determined that they were not for the benefit of the company, shareholders and other stakeholders,” Duke said.
It was also hit by “determined mixed results” in the utility sector’s hedge fund, where it was previously acquired by Sempra Energy, FirstEnergy and Evergy.
“Equipment share prices are used in the material that the sector has done little to date since Elliott joined, fixing an unstoppable track record of shareholder value damage,” Duke said.
The aggressive public exchange overshadowed a struggle to convince shareholders about Duke’s strategic ethics and took place under longtime chief executive Lynn Good.
Elliott argues that despite maintaining a “top-tier” equipment portfolio, the company suffered “numerous operational and investment disruptions and strategic errors in the past year, with significant costs. to shareholders and customers ”.
Among the “wrong steps” Elliott cited was the cancellation of the Atlantic Coast Pipeline, a 600-kilometer gas pipeline built in conjunction with Dominion Energy. The project collapsed last year after a series of delays and legal challenges that sent costs up. It prompted a $ 2.1bn sale by Duke.
Elliott also pointed to the cost of a 2014 coal ash spill and what was said to be “overpriced” Piedmont Natural Gas’s acquisition in 2016.
The company, Elliott said, “is more focused on increasing footprint and portfolio than executing operations and prudent investing, which brings insights among the company’s followers that“ empire-building ” at Duke cost to the shareholder amount ”.
A split could create between $ 12bn and $ 15bn “line of sight near-term value” for shareholders, the hedge fund claimed.
Duke’s share rose 0.7 percent in the falling market on Monday. The company last year turned down a merger offer from NextEra Energy, a Florida-based utility and power maker, according to someone familiar with the discussions.
Duke’s move is the second piece of Elliott’s major stakebuilding to clear in more than a month. The hedge fund is also building one multibillion-pound stakes at GlaxoSmithKline, embarking on a potential battle for the future of the UK drug maker after it failed its peers and was late in the race to produce a Covid-19 vaccine.