Duke Energy has responded to a letter sent Monday morning by Elliott Investment Management suggesting the utility giant split into three companies in order to unlock as much as $15 billion in value for investors.
In its response to the hedge fund’s proposal, Duke Energy said it will review the latest suggestion, and that “the company is always open to new ideas to create growth and value.” But, the company also made clear that it is looking out for the best longterm interests of its shareholders and other stakeholders over any narrow special or short-term interest.
“Today’s announcement by Elliott is the latest in a series of proposals that the hedge fund has offered to Duke Energy since July 2020,” the company wrote in a news release. “Throughout, Duke Energy’s Board of Directors has reviewed their proposals in depth and determined that they are not in the best interests of the company, its shareholders and other stakeholders.”
In the hedge fund’s letter, addressed to the energy company’s Board of Directors, it proposes the company separate into “three focused sets of regionally clustered utilities,” split among Florida, the Midwest and the Carolinas.
Elliott, a major investor in Duke, argued in the letter that the company’s “current ownership of utility businesses across three separate geographies has delivered few benefits for stakeholders and has left its Florida and Midwest utilities undermanaged and undervalued.”
Elliott suggested in its letter that splitting the company would “help address the underlying issues that have resulted in Duke’s underperformance and should lead to significant value creation.” Specifically, the firm estimated that the separation would create $12 to $15 billion of line-of-sight near-term value for shareholders.
According to the letter, Duke’s utilities in Florida and the Midwest were once operated as separate, standalone public companies.
“To be clear, Duke’s underlying utilities are strong,” the letter said. “Yet despite their strength, and given the company’s numerous investment and operational missteps, investors have lost confidence in the company’s current multi-jurisdictional, noncontiguous utility model. To regain investors’ trust, the company’s current management and board must simplify its footprint to a more manageable and logical service territory, refocusing on its core Carolinas utilities and recommitting to operational and investment excellence.”
However, for now, it seems unlikely that Duke will go forward with this proposal.
“This ‘shrink-the company’ strategy that underlies all of Elliott’s proposals runs counter to the strategic direction of the entire industry at a time when scale is needed to efficiently finance the company’s unprecedented capital investment and growth opportunities,” Duke said in its response. “It also ignores the obvious capital structure and credit issues, material equity issuance requirement, dis-synergies, dividend sustainability risk, regulatory issues and overall execution risks.”
The energy company also relayed in its response that is is working on its $59 billion five-year clean energy goal focused on longterm strategy. The energy company hopes to cut carbon emissions by at least 50% by 2030 and reach net-zero carbon emissions by 2050.
Duke also stated that given the performance of the company, there was no strategic logic to breaking the company apart, and that it is working to keep its employees safe.
The hedge fund also proposed additional board seats in its letter, asking for the energy company to appoint new directors to the board, which Duke also appeared reluctant to do in its response.
“Elliott has demanded to appoint new directors to Duke Energy’s board despite the broad and deep experience of Duke Energy’s current board, which has recently added several new members,” the company said in its response.
Content from The News Service of Florida was used in this report.