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Duke Energy Urged by Hedge Fund Elliott to Split Into 3 Firms

Duke Energy is urged by activist hedge fund Elliott to form a board panel to explore the possibility of separating into three companies.

Duke Energy  (DUK) - Get Report is being urged by Elliott Management, the hedge fund run by Paul Singer. to consider separating into three companies, the New York-based fund said Monday.

Shares of the Charlotte, N.C., power provider at last check were up slightly at $103.66.

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Elliott said it had sent a letter to the utility's board in which it argued that Duke's "long-term underperformance has not been reflective of its high-quality assets and that the company should explore a separation to increase operational focus and improve performance."

Elliot said it wanted the company to form a strategic-review committee that would explore the possibility of a tax-free separation of the utility into three companies.

The three companies would be based on the three major
geographies it serves: the Carolinas, Florida and parts of the Midwest.

Elliott told Duke in a letter that it was one of its 10 largest shareholders, which would put its stake above $900 million, according to The Wall Street Journal.

Elliot said it had engaged privately with Duke's board over the past month.

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"As a result of incomplete information regarding its involvement after news reports last week, Elliott has determined to make public its views and facilitate a broader discussion of the optimal path forward for the company," Elliot said.

In response, Duke Energy said in a statement that the “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 its board has reviewed a series of proposals from Elliott since July "and determined that they are not in the best interests of the company, its shareholders and other stakeholders."

In September, Duke Energy rebuffed a potential takeover bid from NextEra Energy  (NEE) - Get Report, the world’s largest utility owner by market value.

Duke provides electricity to nearly eight million customers in six states including the Carolinas, some Midwestern states and Florida. The company distributes natural gas to 1.6 million customers in Ohio, Kentucky, Tennessee and the Carolinas.

"Duke Energy will review Elliott’s latest proposals as well and the company is always open to new ideas to create growth and value," the company said. "However, Duke Energy and its Board of Directors will always advocate for the best long-term interests of its shareholders and other stakeholders over any narrow special or short-term interest."

In November, Elliott Management called upon power utility Evergy  (EVRG) - Get Report to "immediately reengage" with NextEra Energy after reportedly rejecting a $15 billion acquisition offer.

Last month, NextEra Energy reported mixed first-quarter results for its March quarter.