New York hedge fund pressures Evergy to increase profits or sell the company
Evergy, the electric utility serving 1.6 million customers in Kansas and Missouri, announced Tuesday that it’s considering options including a possible sale of the company to increase its value for its stockholders.
A major Evergy shareholder is pressing the company to invest more money in upgrading the electrical grid in its service area, while cutting operation-and-maintenance spending and eliminating a program of buying back company stock.
The disgruntled shareholder, Elliott Management Corp., is a hedge fund run by billionaire investor Paul Singer. Elliott is also urging Evergy to accelerate development of wind energy and reduce its reliance on coal, which is currently 40 percent of its power mix.
Elliott claims operations and maintenance cost savings would come from transitioning away from coal to renewable energy.
For example, replacing about 20% of Evergy’s most expensive coal generation with wind energy could save more than $200 million, Elliott claims.
Elliott owns 11.3 million shares of Evergy stock, worth $760 million. The firm estimates in a letter to the Westar board that following its plan — or selling Evergy to a company that will — would increase Evergy’s overall stock value by $5 billion.
Evergy was created two years ago by the merger of Topeka-based Westar Energy and Kansas City Power & Light, based in Kansas City, Mo.
Evergy has about 1 million Kansas customers and 600,000 in Missouri.
Since the merger, Evergy’s shareholders’ returns on investment have lagged peer utility companies by 25 percentage points and its stock is now valued at a significant discount, Elliott’s letter says.
“We believe that Evergy’s stock-price underperformance since the completion of the . . . merger reflects investors’ increasingly skeptical outlook on the Company’s long-term plan and its recent strategic decisions,” Elliott wrote in its letter. “Investors are especially skeptical regarding Evergy’s current strategy of using capital to repurchase shares at the expense of increased investment in its infrastructure.”
In a written statement, Evergy defended its performance.
“As expressed to Elliott, we are confident in our ability to deliver long-term growth and shareholder value creation through the execution of our strategic plan,” Evergy’s statement said. “This plan includes maximizing operational savings from our 2018 merger, the share repurchase program we committed to when this merger was completed, paying a competitive dividend and making capital investment that will drive value.”
Over-aggressive cost cutting to improve shareholder value could affect the quality of service customers get from Evergy, said David Nickel, consumer counsel for the Citizens’ Utility Ratepayer Board, the Kansas state agency that represents residential and small-business utility customers.
To get the kind of increased returns Elliott’s proposing, “To me that presumes that there must be atrocious mismanagement of the company presently that I just don’t perceive exists,” Nickel said.
Selling the company would likely negate local control of the utility, he said.
“The whole reason we ended up with the merger between KCPL and Westar (was to) have a local company that has local ties,” Nickel said. “That was one of the selling points, that it had Midwest values, that this company, by virtue of the merger, would be big enough to withstand (acquisition attempts from) companies from far-away parts of the nation or maybe even from foreign countries.”
This story was originally published January 21, 2020 at 6:00 PM with the headline "New York hedge fund pressures Evergy to increase profits or sell the company."
