Elliott Management and Bluescape Resources Send Letter and Presentation to the Board of Directors of Sempra Energy
Group Highlights $11-$16 Billion Readily Achievable Value Creation
Opportunity, Resulting in $139-158 per Share for Sempra
Sees Substantial Benefits for Customers, Employees and Regulators
Recommends Six New Directors and Formation of Strategic Review
Committee to Conduct Comprehensive Portfolio and Operational Reviews
Full Letter and Presentation Available at SustainableSempra.com
Elliott Associates, L.P. and Elliott International, L.P. (together,
“Elliott”) and Bluescape Resources Company (“Bluescape”) (collectively
the “Sempra Shareholder Group”), which together own a $1.3 billion or
4.9% economic interest in Sempra Energy (the “Company,” or “Sempra”),
today released a letter and presentation outlining a $11-$16 billion
readily achievable value creation opportunity to Sempra’s Board.
According to the letter and presentation, Sempra owns a collection of
excellent regulated and long-term contracted critical infrastructure
businesses, but its focus on sheer size has led to the creation of a
conglomerate structure in which these disparate businesses are grouped
together with no compelling strategic or financial rationale. The
resulting complexity and management and Board detachment has introduced
numerous risks for all key stakeholders, leading Sempra’s share price to
meaningfully underperform and persistently trade at a steep discount to
both peers and achievable value.
To unlock this value at Sempra, the Group highlighted an opportunity for
Sempra’s Board and CEO Jeff Martin and his team to adopt a two-step plan
that would benefit all key stakeholders:
1) Reset Oversight: Refresh the Board with
six independent, highly qualified directors with diverse experience and
expertise to help oversee the transition to a Sustainable Sempra.
2) Strategic Review: Establish a Strategic
Review Committee of the Board that is empowered to conduct full
portfolio and operational reviews to identify value-creation
opportunities for all shareholders.
In addition, the letter said the path forward can maximize overall
reliability and service for customers, opportunities for employees,
transparency and accountability for regulators, and value and certainty
for shareholders. This more focused approach will enable Sempra to
unlock capital to reinvest locally in critical infrastructure with no
net increase in utility customer rates, while eliminating exogenous
risks from businesses outside each regulator’s direct purview.
Once a mutually agreed-upon path forward between the Sempra Shareholder
Group and the Board is reached, the Group said in its letter that it
believes a Strategic Review can be completed and a Sustainable Sempra
Plan announced to all key stakeholders by year-end.
The letter and presentation can be downloaded at SustainableSempra.com.
The full text of the letter follows:
June 11, 2018
The Board of Directors
Sempra Energy
488 8th Avenue
San
Diego, California 92101
Dear Members of the Board:
We are writing to you on behalf of Elliott Associates, L.P. and Elliott
International, L.P. (together, “Elliott”) and Bluescape Resources
Company LLC (“Bluescape”) (collectively, “we” or the “Sempra Shareholder
Group”), which together own a $1.3 billion or 4.9% economic interest in
Sempra Energy (the “Company,” or “Sempra”), making us one of your
largest investors.
By way of introduction, Elliott is a multi-strategy investment firm that
was founded in 1977 and has more than $35 billion in assets under
management today. Elliott has a strong track record of investing in the
power, utility and energy sectors and working with companies to create
long-term, fundamental stakeholder value. Bluescape is a private
investment firm founded by John Wilder in 2007 focused on value-oriented
investments in the upstream oil and gas, power and utility industries.
Together, Elliott and Bluescape have recently collaborated on two
investments in the utility industry, NRG Energy and FirstEnergy Corp.
Both investments allowed Elliott and Bluescape to form positive
partnerships with the respective boards and management teams and
resulted in more focused companies and compelling returns for
shareholders.
First and foremost, we are pleased to be Sempra shareholders. Sempra
owns a collection of excellent regulated and long-term contracted
critical infrastructure businesses. Despite the attractive
characteristics of its businesses, Sempra shares are deeply undervalued
by the market. In our view, this persistent and substantial
undervaluation stems from a focus on sheer size that has permeated
management and Board thinking. This has led to the creation of a
conglomerate structure consisting of disparate businesses grouped
together with no compelling strategic or financial rationale. The
resulting complexity and management and Board detachment has introduced
numerous risks for all key stakeholders. Unfortunately, certain of these
risks have become reality, and all of Sempra’s key stakeholders have
suffered as a result.
Fortunately, we believe that Jeff Martin and his team have a unique
opportunity to address these issues and create a more Sustainable
Sempra. Importantly, our ideas and proposals provide Sempra’s
businesses the unique ability to capture wins all around -- to maximize
overall reliability and service for customers, opportunities for
employees, transparency and accountability for regulators, and value and
certainty for shareholders. If executed, we believe this can lead to $11-16
billion line-of-sight value creation ($139-$158/share) representing a
38-57% uplift.
Through extensive work with a team of advisers and experts, including an
industry leading financial adviser, leading corporate, tax, and
regulatory counsel, and a big four accounting firm, we have developed a
two-step plan to unlock this value:
1) Reset Oversight: We have identified six
independent, highly qualified directors with diverse experience and
expertise who are excellent additions to the Board and are interested
and ready to help oversee the transition to a Sustainable Sempra.
2) Strategic Review: Establish a Strategic
Review Committee of the Board that is empowered to conduct full and
unfettered “no stone unturned” portfolio and operational reviews aimed
at identifying value-creation opportunities for all key stakeholders.
While the specific details, evaluations and conclusions will ultimately
be up to the Committee, we believe the goal of the Strategic Review
Committee’s work should be to formulate a strategic performance plan to
i) unlock Sempra’s significant conglomerate discount, ii) highlight the
value of its LNG development pipeline, and iii) improve the safety,
reliability and service of its core US utilities through continued
system investment, importantly, with no net increase in customer rates.
This can be viewed as a “back to basics” strategy where individual
businesses can excel without unintended externalities and boards and
executives can execute their core competencies, in turn, benefitting all
key stakeholders.
We are making today’s letter and accompanying presentation public in
order to facilitate a full discussion of these ideas and provide
transparency to all Sempra’s stakeholders regarding our views. Our
materials can also be downloaded at www.SustainableSempra.com.
Our goal is to enter into a constructive dialogue with Sempra’s Board
and management to discuss our ideas for sustainable value creation and
reach a mutually established path forward. There is strong recent
precedent for collaborating with Elliott and Bluescape in the utility
industry to maximize value. We think an agreement can be reached quickly
to enhance the Board and establish the Strategic Review Committee with
the proper oversight, resources and mandate necessary for much-needed,
fully objective portfolio and operational reviews. We believe this
review can be completed and a Sustainable Sempra Plan announced to all
key stakeholders by year-end.
Thank you in advance for considering our ideas. We look forward to
meeting to further these discussions and will make ourselves available
at the Board’s earliest convenience.
Respectfully,
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Jeff Rosenbaum
Portfolio Manager
Elliott Management Corporation
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C. John Wilder
Executive Chairman
Bluescape Resources Company
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ABOUT ELLIOTT
Elliott Management Corporation manages two multi-strategy investment
funds which combined have approximately $35 billion of assets under
management. Its flagship fund, Elliott Associates, L.P., was founded in
1977, making it one of the oldest funds of its kind under continuous
management. The Elliott funds’ investors include pension plans,
sovereign wealth funds, endowments, foundations, funds-of-funds, high
net worth individuals and families, and employees of the firm.
ABOUT BLUESCAPE
Bluescape, founded in 2007, is a private investment firm focused on
value-oriented investments in the upstream oil and gas and power
industries. Bluescape employs a unique approach and long-term
perspective, helping position companies for growth and value creation by
providing capital and strategic oversight with its multi-disciplined
team of executive-level managers, operators, strategic consultants, and
restructuring advisors.
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