BOSTON/NEW YORK (Reuters) - U.S. midwestern utility Evergy Inc (EVRG.N) affirmed on Tuesday its faith in its business plan after activist hedge fund Elliott Management Corp urged the firm to improve its performance or consider a merger with another power company.
Shares in Kansas City, Missouri-headquartered Evergy earlier hit a lifetime high after Elliott disclosed its demands and that it had an economic interest of 11.3 million shares - making it Evergy’s fourth-largest shareholder, according to Refinitiv Eikon data.
The stock closed 2% higher, giving the company a market cap of around $15.7 billion.
Elliott said in its statement that some $5 billion of value could be added to Evergy if the company stopped its share buyback program, cut operations and maintenance costs, and deployed more cash into developing its infrastructure network, including building more renewable power generation.
Evergy got 40% of its power from coal-fired plants in 2018, with renewables contributing 25% of its generation mix, according to an Evergy presentation dated November 2019.
Alternatively, the firm should merge itself with another utility that could improve Evergy’s performance, Elliott added.
Acknowledging that it had been talking to Elliott since October, Evergy said in a separate statement that, while it was open to evaluating opportunities, “we are confident in our ability to deliver long-term growth and shareholder value creation through the execution of our strategic plan.”
It added that its current plan offered the best returns within the regulatory framework it agreed with watchdogs in Kansas and Missouri when it became Evergy in 2018, following the merging of Great Plains Energy and Westar Energy.
Evergy’s creation followed a two-year regulatory battle: first announced in 2016 as Great Plains buying Westar, the transaction was restructured as a merger-of-equals after the Kansas Corporation Commission objected to how a Great Plains purchase would impact the combined company’s finances and customer bills.
In a note, Wells Fargo analysts said while Evergy was an attractive target, the previous merger experience made it cautious toward getting regulatory sign-off on a new deal.
Any opportunities to invest in modernization and more renewables were restricted by Evergy’s plan with regulators, the bank added.
Activist investor Elliott has targeted a number of utilities in recent years: its last campaign focused on Sempra Energy (SRE.N), with a settlement involving board seats and a review of Sempra’s assets between the California-based utility and Elliott agreed in September 2018.
Elliott is also a creditor in the ongoing bankruptcy of California utility PG&E Corp (PCG.N).
Reporting by Svea Herbst-Bayliss in Boston and David French in New York; Editing by Andrea Ricci and Rosalba O'Brien