rallied Wednesday as new leadership took over the power producer, but stocks across the energy sector continued to sag as investor ire swelled.
Longtime AES Chief Executive Dennis Bakke relinquished the reins Tuesday to Chief Operating Officer Paul Hanrahan, in the name of what Bakke called "more efficiency, accountability and control." Although AES has no involvement in the controversial energy-trading business, whose fortunes have plunged spectacularly in the past year, the company has weathered some of the same investor backlash over its weighty debt load and a dismal performance in the international power industry.
In accepting his new post, Hanrahan promised an aggressive turnaround strategy that includes $2 billion worth of debt reduction and increased liquidity. The company plans to sell assets and equity, cut back sharply on capital expenditures, and postpone growth plans until it achieves stability.
"Our No. 1 objective is to regain credibility with investors and deleverage the company," Hanrahan said.
AES hopes to secure investment-grade status for the first time in history within the next four years, he said.
Shares of AES, up 13% to $5.66 in midday trading, have hemorrhaged nearly 90% of their value during the past year. The meltdown, culminating with a $313 million first-quarter loss, has been fueled by a series of economic crises in Brazil and other key emerging markets for AES.
"The economic performance of AES has been terrible this past year," Bakke said. "As the leader, I take full responsibility, and this decision to leave comes from that."
At Bakke's direction, AES embraced a rapid-fire growth plan that allowed individual employees to pursue elaborate expansion projects in emerging, deregulated power markets. With that strategy backfiring, however, investors have been calling for a more conventional leader.
Bakke said he is no longer what AES needs.
"I think of myself as a visionary, a builder," Bakke said. "AES needs to adjust to a really new way of life ... and it really doesn't fit me very well."
Bakke, who co-founded Arlington, Va.-based AES 28 years ago, will remain involved as a director and the company's largest shareholder. He follows a series of chief executives, sacrificed in the merchant energy meltdown, who've been ushered out the door by disgruntled shareholders.
Chairman William McCormick and
Chairman Chuck Watson have been among recent casualties at the top of the energy sector. The former senior management team at Enron has been disbanded as well.