This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Sandell Urges Spectra Energy To Take Further Steps To Unlock Value

Stocks in this article: SE SEP













NEW YORK, June 17, 2013 /PRNewswire/ -- In reaction to Spectra Energy's (NYSE: SE) decision to drop its US Transmission assets into Spectra Energy Partners (NYSE: SEP), Sandell Asset Management's Chief Executive Officer Thomas E. Sandell sent the following letter to Greg Ebel, Chief Executive Officer of Spectra Energy Corp.  

The letter urges the firm to take further steps to unlock value including reviewing strategic alternatives for SE's Canadian operations (Westcoast Energy, Inc./WE) and DCP Midstream LLC (DCP).  Mr. Sandell also urged the firm to implement operational cost cuts across SE's entities that will reduce inefficiencies and boost profitability.

Mr. Greg EbelChief Executive OfficerSpectra Energy Corp5400 Westheimer Court Houston, TX 77056-5310Cc: Mr. Pat Reddy, Chief Financial Officer; Board of Directors

Mr. Ebel,

We applaud you and the Board on the decision to drop Spectra's (SE) US Transmission assets into Spectra Energy Partners (SEP), as we believe that this long awaited move will marry the interests of SE and SEP, streamline executive management, and convert SEP into a world-class MLP, thereby garnering a valuation premium.  As you have also pointed out, this transaction will be materially beneficial to SEP's distribution and SE's dividend and dividend growth profile, driving equity value at both entities.

However, as our shareholder group (the "Sandell Group") advised you last month and discussed with you again last week, we believe that SE has an intrinsic value of $48 per share, or more than 40% over its current price, which we believe would be realized if you and the Board fully embrace and execute the additional steps we have outlined, transitioning SE into a pure GP HoldCo entity.  Indeed, existing GP HoldCo entities such as Williams Companies, Inc. (WMB), Kinder Morgan Inc. (KMI), and Oneok, Inc. (OKE) trade at a premium valuation as strategic allocators of capital in the fast-moving, competitive North American energy infrastructure landscape. 

The remaining steps in our 'Plan to Unlock Shareholder Value' include the following actions:

a)     Review strategic alternatives for SE's Canadian operations (Westcoast Energy, Inc./WE) including an IPO of WE.  WE is currently 100% owned by SE and files fully audited financials on SEDAR in Canada.  We believe an IPO of primary shares of WE would: i) highlight the premium valuations and lower cost of capital afforded to Canadian infrastructure companies; ii) simplify SE's corporate structure by allowing market participants to consistently value the Canadian businesses (as the value of SE's ownership of WE's shares) as opposed to the uneven valuation metrics employed currently; and iii) tie WE's executive compensation to WE share price performance, thereby promoting better strategic decision-making, efficiency and accountability.  Based on our analysis, we do not believe there will be negative financial or strategic implications of pursuing this structure, as currently the strategic relationship between SE's US assets and WE is limited and SE will continue to control WE through its significant share ownership;

b)     Review strategic alternatives for DCP Midstream LLC (DCP), including a sale/dropdown or IPO.  We believe there is both strategic and financial interest in SE's DCP stake as well as the potential to highlight the value of DCP's MLP-qualifying income through an IPO.  While we recognize that any strategic move would require the approval of DCP's other 50% owner, Phillips 66 (PSX), there are certain self-help actions that can be taken by SE to unlock DCP's hidden MLP valuation, namely a drop-down of its DCP stake into a related, SE-controlled MLP;

c)     Implement operational cost cuts across SE's entities that will reduce inefficiencies and boost profitability as management teams are more aligned with underlying operating asset performance and their related publicly-traded shares.

We presented these actions to you on May 16 th, and analyzed their financial potential, in our White Paper, a copy of which can be found here:

http://www.sandellmgmt.com/news/Sandell_Group_Spectra_Analysis.pdf

Based on our discussions with other shareholders and a review of sell-side research last week, we believe there is considerable support for the execution of the balance of the Plan as we have laid out in our White Paper[1].

1 of 3

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs