Elliott Management has engaged with PG&E [NYSE:PCG] multiple times in the last few months, saying it has built a significant position in the Northern California utility, according to two sources familiar with the situation.
The company received at least one letter from Elliott and has hired advisors to deal with its approach, the sources said. Elliott did not lay out a clear agenda throughout the engagement and it is unclear if it will stick around to add pressure on the company, the first source said.
While the company’s AGM has passed, shareholders owning at least 10% can call a special meeting and also act by written consent.
PG&E’s shares are down around 43% since 12 October, when the company first disclosed that it could face liabilities due to allegations that its equipment triggered major wildfires in Northern California. The USD 20bn market cap group could be exposed to billions of dollars in losses stemming from legal actions related to the wildfires, according to some estimates.
PG&E suspended its dividend in December in an attempt to set aside some cash while it responds to the allegations. It currently holds USD 144m in cash reserves.
Considering the significant risk the company is exposed to, Elliott may see opportunities in the company’s debt and not exclusively in its equity, the first source said.
At the end of March, PG&E had USD 17.4bn in long-term debt. The company is investment grade and most debt trades at or above par except for some long-dated bonds. PG&E in December suspended paying dividends on its close to USD 260m in preferred shares due to the potential wildfire liabilities.
PG&E has limited options to unlock value until there is more clarity on the pending claims, the first source said. Looking ahead, one option could be to separate the regulated part of the business from the unregulated portion, he said. PG&E owns a conventional utility division and renewable energy assets.
Earlier this week Elliott launched a campaign to secure board seats at Southern California utility Sempra Energy [NYSE:SRE] in partnership with Bluescape Resources. The activists want Sempra to review alternatives and consider separating its Latin American and infrastructure assets.
NRG Energy [NYSE:NRG] monetized its renewables business and cut costs under pressure from Elliott about a year ago. Elliott recently exited NRG and has experience with troubled utilities, as shown by its attempt to bid for bankrupt Texas utility Oncor last year. Sempra ultimately emerged as the buyer of Oncor.
PG&E did not respond to a request for comment and Elliott declined to comment.
by David Carnevali