Dive Brief:
- Elliott Investment Management, which has around $1 billion of its funds invested in NRG Energy, rebuked the Houston-based company for its operations, particularly its recent acquisition of Vivint, a home security business that Elliott said doesn’t fit with NRG’s business.
- In a Monday letter to the board, Elliott Investment Management said NRG has “regressed to the same unfocused, overleveraged business model” that predated its initial involvement with the company.
- NRG did not address the letter specifically. It said in a statement posted on its website that it is “committed to creating shareholder value and appreciates Elliott’s interest” and “looks forward to an open dialogue.”
Dive Insight:
Elliott Investment Management urged NRG to commit to changes it believes would create $5 billion in shareholder value.
Elliott disclosed a 13% stake in NRG in 2017, after which it said it worked with the company to develop a plan that initially boosted its stock. NRG’s stock has subsequently underperformed, which Elliott blames in part on its recent acquisition of Vivint.
Shares closed at $33.78 Monday, down more than 20% since mid-May 2022. The S&P 500 Utilities Index is down about 6% over the same time period.
When NRG announced its acquisition of Vivint in March, it said it “now features a larger customer footprint, serving a network of approximately 7.3 million customers across North America that represents a substantial cross-sell opportunity through market-leading brands and complementary sales channels.”
Elliott said the acquisition was the “single worst deal in the power and utilities sector in the past decade.”
“Since the conclusion of our involvement, NRG has suffered operational setbacks, missed financial guidance, and — with the recent acquisition of Vivint, a home security business with stark operational differences to NRG’s core power businesses — regressed to the same unfocused, overleveraged business model that predated our initial involvement,” the asset management firm wrote in its letter to NRG.
Elliott called for a leadership shakeup in the form of appointing new independent directors with expertise in the energy industry, the generation of $500 million of cost reductions by improving its cost structure, and a strategic review of investments including Vivint.
“Successful execution of the Repower NRG Plan could create over $5 billion of shareholder value, driving the company’s stock price to reach or exceed $55 per share,” Elliott said, highlighting what would be a record-high stock price for the company.
Elliott has targeted energy companies in the past. In May 2021 it called on Duke Energy to split into three companies to maximize shareholder value.
Last year it called on Suncor to change course, saying the Calgary, Canada-based energy company had missed production goals and experienced high costs and safety failures.
NRG’s generation portfolio includes natural gas, coal, renewable energy and nuclear energy. According to its website, it maintains approximately 16 GW of generation capacity across 20 facilities.
Elliott’s letter says that the firm saw “enormous” potential for value when it initially invested in NRG, though the company’s stock was underperforming and lagging the S&P. After NRG made strategic changes in 2017 that the firm advised, it began to outperform, Elliott said.
“In fact, in the past 10 years, the only period of sustained outperformance was during Elliott’s engagement with the company in 2017-2018,” the firm said.
Elliott’s letter refers to NRG’s retail franchise as a “crown jewel” and a market leader in Texas, and says the firm believes with leadership and strategy changes, NRG can create “significant and sustainable value” for its shareholders.
