Elliott Wants Duke Energy (DUK) to Split Into Three Regionally-Focused Utilities

Elliott Investment Management sent a letter to the Board of Duke Energy (NYSE: DUK), urging it to explore splitting the company into three regionally-focused utility companies.

Under Elliott's plan, the company should commence a strategic review to explore a separation into three regionally-focused entities: (1) the Carolinas; (2) Florida; and (3) the Midwest. Each new company would be headquartered in the region it serves. The activist hedge fund believes the separation will enable greater operational focus resulting in "improved execution, better system reliability, lower costs and increased investment in critical infrastructure, including renewables." The separation would be tax-free.

Elliott believes its plan can create $12 to $15 billion of "line-of-sight" near-term value for shareholders. The firm has been engaged with the Duke Board on a private basis over the past month.

"This proposed review would help address the underlying issues that have resulted in Duke's underperformance and should lead to significant value creation," Elliott Senior Portfolio Manager, Jeff Rosenbaum, states. "We believe that a separation of Duke into the Carolinas, Florida, and the Midwest should create $12 to $15 billion of line-of-sight near-term value for shareholders. This value upside is based on observable publicly traded market valuation metrics of Duke's closest peers and does not incorporate meaningfully higher valuations realized in recent transactions in Florida and Indiana, which would result in several billion dollars of incremental value. We estimate that the Carolinas, Florida, and the Midwest would command equity market valuations2 of $54 to $55 billion, $22 to $23 billion, and $14 to $15 billion, respectively. The combined value of $90 to $93 billion greatly exceeds Duke's unaffected equity market capitalization of $78 billion.3 Importantly, Duke shareholders would continue to own and be able to benefit from further value accretion over time from the enhanced operations and growth of these three optimized standalone utilities."

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