(Bloomberg) -- Sempra Energy met with activist investors Elliott Management Corp. and Bluescape Resources to try and reach a truce ahead of its analyst conference set for Thursday, according to people familiar with the matter.
The two sides met Monday in Washington to discuss whether Sempra would give the activists board seats and consider setting up a committee to weigh options to create shareholder value, said the people, who asked not to be identified because the details are private. The meeting concluded without reaching a settlement but talks are ongoing, the people said.
A representative for the Elliott and Bluescape group declined to comment. A spokesman for Sempra said the company is committed to engaging with shareholders and looking forward to the analyst conference on Thursday, but had no comment on specific discussions.
Talks between the two parties may show Sempra is open to considering at least some of the activists’ demands. Elliott and Bluescape, which together hold a 4.9 percent interest in Sempra, have called for sweeping changes, including selling the company’s Latin American utilities and spinning off its U.S. liquefied natural gas business. The demands come just as growth-hungry utilities like Sempra are increasingly branching out and borrowing heavily to expand their business beyond power distribution.
In a letter to Sempra’s board dated June 11, Elliott and Bluescape also recommended six new directors be elected to the board. The investors said their proposals could unlock up to $16 billion in value for shareholders.
Separately on Monday, Moody’s Investors Service placed Sempra on review for downgrade, citing both the increased leverage the company has taken on to fund its acquisition of Oncor Electric Delivery Co., and the “recent overture from an activist investor” that “heightens the execution risk associated with any initiatives that Sempra may undertake in order to improve its credit quality.”
Monday’s meeting comes weeks after Sempra Chief Executive Officer Jeff Martin took the helm and more than a year after Elliott and Bluescape pressured U.S. power generator NRG Energy Inc. to cut costs, prompting the company to agree in February to divest $2.8 billion in assets.
The meeting was attended by Sempra’s Martin, its chief operating officer Joseph Householder, two independent directors and its financial and legal advisers, the people said. Elliott portfolio manager Jeff Rosenbaum and John Wilder, founder of Bluescape, were among representatives of the activist investors.
Several of Sempra’s shareholders have urged the company to avoid a messy public fight, the people said, and suggested postponing the analyst day if the two sides can’t reach an agreement.
Sempra also brought up the idea of what it called the “Elliott playbook” at the meeting, referring to the activist’s track record in reaching settlements, the people said. In this case, that could mean agreeing to elect fewer than six representatives to the board so long as a strategic review is started.
“The question will be whether two additional board members will prove sufficient to gain activist confidence in the situation or whether an entire board sweep will be required,” Bank of America Merrill Lynch analyst Julien Dumoulin-Smith wrote in a note to clients.
Dumoulin-Smith said he didn’t expect all six nominees to be taken up.
“At a minimum, we expect at least 2 new directors for the activists from a total of 13 today,” he said.
In the majority of Elliott’s investments it doesn’t launch a proxy fight, instead working behind the scenes to agitate for change and often coming to agreements with the companies it targets. In its 41-year history, Elliott, run by billionaire investor Paul Singer, has only won one major proxy fight. That was at Telecom Italia earlier this year, where it won 10 seats on the board.
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