Sempra Soars on Elliott's Bid to Streamline and Sell Assets

(Bloomberg) -- Sempra Energy shares had their biggest ever intraday gain as Elliott Management Corp. and Bluescape Resources called for a sweeping overhaul, including selling the company’s Mexican and South American utilities and spinning off its U.S. liquefied natural gas business.

The two activist funds together hold a 4.9 percent interest in Sempra -- whose assets include San Diego Gas & Electric -- and said its conglomerate structure holds “no compelling strategic or financial rationale,” according to a statement Monday. Elliott and Bluescape are calling for the company to name six new directors and review its holdings, saying there are between $11 billion and $16 billion in “readily achievable value creation” opportunities.

The move comes weeks after Sempra Chief Executive Officer Jeff Martin took the helm and more than a year after Elliott and Bluescape pressured NRG Energy Inc. to cut costs, prompting the company to agree in February to divest $2.8 billion in assets. Monday’s letter appears to follow a similar blueprint, pushing to strip Sempra down to its core business.

“It sounds like what Elliott’s proposing is that they get rid of anything that’s not directly utility related,” Kit Konolige, a utility analyst at Bloomberg Intelligence, said by phone. “Generally, it’s a pretty good assumption that utilities are more valuable when they’re pure play utilities.”

Sempra surged as much as 18 percent on the news, the most on record. The stock was up 15 percent to $117 at 1:36 p.m. in New York. Before Monday, the shares had declined 12 percent in the past year. Elliott and Bluescape said their strategy would raise the share price to between $139 and $158.

LNG Assets

“Sempra Energy is committed to an open dialogue with all shareholders,” the company said in a statement. “Our board and management will review their letter and presentation in detail and respond in due course.”

Elliott and Bluescape are proposing Sempra sell its stakes in IEnova, which develops and operates energy infrastructure in Mexico, Chilquinta Energia SA in Chile, Luz Del Sur SAA in Peru and its Sempra Renewables division. The units have a combined equity value of between $9 billion and $10 billion, according to a presentation Monday.

The investors are also pushing to spin off liquefied natural gas assets to shareholders for a combined value of between $8 billion and $9 billion. That includes Sempra LNG & Midstream, Cameron LNG and Port Arthur LNG.

“A successful execution of this strategy would go a long way in removing the conglomerate discount assigned to shares,” Guggenheim Securities analysts led by Shahriar Pourreza said in a research note Monday. “At the end of the day, we would expect that Elliott Management and Bluescape could have a similar impact that it has had with NRG.”

Busy Activist

Sempra’s U.S. utilities division, consisting of San Diego Gas & Electric, SoCalGas and Oncor Electric Delivery Co., would have a combined value of as much as $30 billion, according to the presentation. Last year, Sempra agreed to acquire Oncor for $9.45 billion, topping an offer from Warren Buffett’s Berkshire Hathaway Inc. after Elliott argued Berkshire’s bid undervalued the Texas utility.

Elliott, the activist fund run by billionaire Paul Singer, has been one of the busiest activist investors of the past year, targeting companies around the globe.

Bluescape chairman C. John Wilder is an energy veteran who pulled the Texas utility TXU Corp. from the brink of insolvency more than a decade ago -- then made a fortune selling it to a group including KKR & Co. in one of the biggest leveraged buyouts in history. He joined the board of NRG last year.

“The NRG situation is in the ballpark with what they would apparently be proposing here,” Konolige said. “The idea is to simplify down to the core business.”

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