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Duke Energy downplays investor’s recommendation to split into three utilities

One of Duke Energy’s top shareholders is urging one of the nation’s largest utility to consider splitting itself into three different companies.

Elliott Investment Management LP sent Duke an open letter calling the utility undervalued and outlining a plant it says could create up to $15 billion in near-term increased valuation.

Duke Energy, lead by CEO Lynn Good (pictured), provides electricity and natural gas to nearly 10 million customers in seven states. Its service territories stretch from the Carolinas to Florida on the eastern seaboard, and from Ohio to Kentucky in the Midwest.

Elliott’s management has been engaging with Duke’s board of directors over the past months, but decided to takes its idea for separation public in the letter.

“Elliott’s plan proposes that the company commence a strategic review to explore a separation into three regionally focused entities: (1) the Carolinas; (2) Florida; and (3) the Midwest, each of which would be headquartered in the region it serves,” a summary of the letter read. “Elliott asserted that this separation will enable greater operational focus resulting in improved execution, better system reliability, lower costs and increased investment in critical infrastructure, including renewables.”

North Carolina-based Duke Energy has grown dramatically with major mergers and acquisitions over the past two decades, positioning it as one of the nation’s largest utility holding companies along with the likes of Exelon Corp. and NextEra Energy. Duke acquired gas-firm Progress Energy for $32 billion nearly a decade ago, and has not responded to suggestions that it and Florida-based NextEra combine to create what would clearly be the biggest U.S. utility.

Shortly after Elliott’s letter went public, Duke Energy leaders responded Monday.

The utility statement defended its market value and growth achievements, while chiding Elliott for what might be called “decidedly mixed results” in the fund’s activities with other utilities including Sempra Energy, First Energy and Evergy.

Duke’s response also noted that Elliott wanted more seats on the board of directors, and the utility argued that its current path toward decarbonization is better achieved as a unified whole. Separation would also involve regulatory and short-term financial hurdles.

“Duke Energy’s business is stronger and more impactful as a consolidated, standalone entity that remains as one,” the response reads. “The company can better support its customers, employees, investors and their dividends, and other stakeholders by staying together. All of its businesses play a critical role in Duke Energy’s clean energy transformation, and the company has made crucial investments and built relationships in each region where it operates.”

Trading for shares of Duke Energy closed slightly down Monday on New York Stock exchange. Year over year, the utility’s stock has risen close to 20 percent.

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