Duke Energy rebuffs hedge fund’s proposal to break up the utility

Duke Energy’s leadership fired back at one of its largest investors, Elliott Investment Management, this week after Elliott made a high-profile pitch to break up the energy giant into three smaller regional companies.

Elliott proposed the break-up as a means of increasing the overall financial picture of Duke and enhancing shareholder value, which the Florida firm contended was laboring under a “conglomerate discount” in which the sum of the company was not as great as it would be if it were operating three smaller, but more focused and efficient divisions covering the Carolinas, the Midwest, and Florida.

Duke replied in a written statement it would review the proposal, but was confident that the company was already “delivering strong, sustainable value for shareholders, customers, communities and its employees.”

Charlotte, N.C.-based Duke said its stock price had increased 25.2 percent over the past 12 months compared to 18.7 percent for the S&P Utility Index. It also discounted Elliott’s proposed break-up as accomplishing little other than forcing Duke to issue up to $7 billion in discounted common equity securities, which would likely wind up in the hands of Elliott and other savvy hedge funds.

“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,” Duke’s statement said.

While Elliott described Duke’s current portfolio of utilities as having failed to deliver much value for shareholders, Duke said a breakup would do far more harm than good as it proceeds along a path that involves a $59 billion five-year clean energy plan to cut its carbon emissions in half by 2030 and completely by 2050.

Duke, which said its five-year plan will deliver customer benefits and create jobs, is also committed to strengthening the electric grid and expanding smart energy infrastructure. Earlier this month the company received regulatory approval from the Florida Public Service Commission for a multi-year rate plan agreement with consumer and business groups in Florida that includes nearly $5 billion in investments to advance clean energy initiatives.

A trio of smaller utilities, Duke said, would each carry a share of Duke’s existing debt and also be viewed with less enthusiasm by Wall Street and the credit markets. The multiple spinoffs would also require extensive and time-consuming regulatory approval. “This ‘shrink-the-company’ strategy that underlies Elliott’s proposal 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,” the statement said.

Several North Carolina lawmakers and Gov. Roy Cooper issued a joint statement on May 17 that said they were proud that Duke Energy’s headquarters are in North Carolina and noted the thousands of jobs the company has created.

“For more than a century, Duke has been a valued member of our business community and we appreciate working with them on issues ranging from economic development and inclement weather response to a clean energy future for North Carolina,” according to the statement from Cooper, House Speaker Tim Moore, Rep. Robert Reives, Senate President Pro Tempore Phil Berger and Sen. Dan Blue.

“Beyond the pride of a home-state company, though, is the reality that Duke delivers reliable, cost-effective energy to millions of North Carolinians. There are natural concerns that come with putting our state’s energy future in the hands of a Wall Street hedge fund, and we would expect the North Carolina Utilities Commission to strictly scrutinize any such arrangement.”

“As our state emerges from this pandemic growing and attracting thousands of good new jobs, it is more important than ever for North Carolina to have a strong, independent, in-state utility,” the statement said.