Activist ValueAct Takes Stake in Wood Pellet Manufacturer Enviva

(Bloomberg) -- Jeff Ubben’s activist fund ValueAct Capital Management has built a $20 million stake in wood pellet manufacturer Enviva Partners LP.

The San Francisco hedge fund made the investment through its new $250 million environmentally and socially focused fund, Ubben said in an interview. Enviva has a market value of about $772.1 million.

“With Enviva, we think we’ve found a jewel because it’s still early days in using wood pellets to reduce coal plant emissions,” Ubben said.

Ubben’s ValueAct Spring Fund now has three public stakes, including previously announced investments in international power producer AES Corp. and education company Strayer Education Inc. The fund has also made three undisclosed investments, Ubben said.

Enviva, based in Bethesda, Maryland, produces wood pellets that can be burned in power plants as an alternative to coal. The company, structured as a master-limited partnership, owns and operates six factories in the U.S. Southeast, capable of producing 3 million tons of pellets annually, according to its website.

“This transaction demonstrates the strong investor support for Enviva Partners and the growing interest in renewable energy and infrastructure investments,” Enviva Chief Executive Officer John Keppler said in an email.

Burning Temperature

Enviva makes an attractive investment, Ubben said, because it has refined its technology to increase the burning temperature of pellets, allowing them to produce more energy, Ubben said. The company has also cut costs by building facilities close to logging sites where it can collect scraps that sawmills can’t use.

"We think the growth here is double digit on the dividend even though we’re getting 9 percent today," Ubben said.

While wood pellets and other types of biomass could reduce demand for coal, they remain controversial among environmentalists because they still emit carbon dioxide when burned. Enviva requires its wood suppliers to commit to replanting trees and managing forests sustainably to offset emissions.

“Biomass, looks to us, as a big opportunity as long as you’re incentivizing the tree farmers to grow their trees,” Ubben said.

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