Enterprising Investor
4 weeks ago
Starboard Value Nominates Three Highly Qualified and Independent Candidates for Election to Algonquin Power’s Board of Directors (3/22/24)
NEW YORK--(BUSINESS WIRE)--Starboard Value LP (together with its affiliates, “Starboard” or “we”) is the largest shareholder of Algonquin Power & Utilities Corp. (NYSE: AQN) (TSE: AQN) (“Algonquin” or the “Company”) with an ownership stake of approximately 9.0%. Today, Starboard announced that it has nominated three highly qualified candidates (the “Starboard Nominees”) for election to the Company’s Board of Directors (the “Board”) at the 2024 Annual General Meeting of Shareholders (the “Annual Meeting”), which has been scheduled for June 4, 2024. The Starboard Nominees are Brett Carter, Chris Lopez and Rob Schriesheim.
In connection with its nominations, Starboard sent the below letter to the members of the Board.
March 21, 2024
Board of Directors
Algonquin Power & Utilities Corp.
354 Davis Road
Oakville, Ontario
Canada L6J 2X1
Dear Members of the Board,
As you know, Starboard Value LP (together with its affiliates, “Starboard”) is the largest shareholder of Algonquin Power & Utilities Corp. (“Algonquin” or the “Company”), with an ownership stake of approximately 9.0%. We have spent a significant amount of time with certain members of the Board of Directors (the “Board”) and management over the past year. After substantial work on our part, the Company has made several important changes, such as a Chief Executive Officer change and initiating a strategic review that has not yet yielded a positive result. However, this has not been an easy engagement, with certain influential members of the Board impeding progress and the majority of the Board either passive or complicit.
Algonquin is at a critical juncture – it is currently in the process of selecting its next CEO and is exploring a sale of its Renewable Energy Group (the “Unregulated Renewables” business). It is therefore essential that Algonquin have directors with the expertise, fresh perspective and shareholder-focused mindset to properly evaluate what may be a wide range of strategic options.
Unfortunately, the current Board has a long history of making value-destructive decisions. This is most clearly evidenced by the Board’s poor succession planning around former CEO Ian Robertson’s departure, the pursuit of the Kentucky Power acquisition (which, thankfully, was terminated because it could not receive regulatory approval), and careless management of the Company’s balance sheet, which led to a material reduction in the dividend. As a result, Algonquin’s stock has drastically underperformed its peers.1
Given the critical decisions and processes currently underway to recruit the next CEO and explore a sale of the Unregulated Renewables business, we have urged Board leadership for the better part of a year to work with us to refresh the Board with highly credentialed directors, including shareholder representatives and directors with relevant expertise unburdened by the poor decisions of the past. Unfortunately, these conversations with the Board have only confirmed our strong view that substantial change is necessary.
Therefore, we delivered a notice to the Company nominating highly-qualified director candidates for election at the upcoming Annual General Meeting of Shareholders, which the Company recently scheduled for June 4, 2024. At the meeting, we will be seeking to remove several long-serving directors with a history of presiding over some of the Company’s most value-destructive decisions and replace them with new highly-qualified directors who we believe would add substantial experience in best-in-class utility operations and complex financial and business transformations, and who bring a shareholder-focused mindset. Importantly, our proposed nominees would be acutely focused on smooth execution of the Unregulated Renewables and Atlantica processes, and would not, in any way, interfere with a value accretive transaction. To be clear, we are NOT looking to remove interim-CEO Chris Huskilson from his position as interim-CEO or from the Board.
We remain open to a constructive resolution, but our engagement with the Company over the past year has proven to us that new Board leadership is urgently required. We look forward to working with the Board and management to renew and strengthen the Board to oversee the Company’s exciting transformation.
Sincerely,
Jeffrey C. Smith
Managing Member
Starboard Value LP
Biographies of Starboard Nominees
Brett C. Carter most recently served as the Executive Vice President and Group President, Utilities and Chief Customer Officer of Xcel Energy Inc. (NASDAQ: XEL) (“Xcel”), a major U.S. electric and natural gas delivery company, from March 2022 to October 2023. He served as Xcel’s Executive Vice President and Chief Customer and Innovation Officer from May 2018 to March 2022. Prior to that, Mr. Carter served as Senior Vice President and Shared Services Executive, Global Technology and Operations, at Bank of America Corporation (NYSE: BAC) (“BAC”), a global financial services firm, from October 2015 to May 2018, and as Senior Vice President and Chief Operating Officer, Global Technology and Operations, at BAC from March 2015 to October 2015. Before joining BAC, Mr. Carter held several leadership roles at Duke Energy Corporation (NYSE: DUK) (“Duke”), a major U.S. energy company, from 2005 to 2015, including most recently as Senior Vice President and Chief Distribution Officer, Duke Energy Operations, from 2013 to March 2015. Prior to that, he served as President, Duke Energy Carolinas, as Senior Vice President, Customer Origination and Customer Service, and Vice President, Residential and Small Business Customers at Duke. Mr. Carter currently serves as a director of Graco Inc. (NYSE: GGG), a multi-national manufacturing company, since February 2021. Mr. Carter holds a B.S. in accounting from Clarion University of Pennsylvania and an MBA with a concentration in marketing from the University of Pittsburgh. He also completed the Harvard Business School Advanced Management Program.
Christopher Lopez currently serves as Executive Vice President, Chief Financial and Regulatory Officer at Hydro One Limited (TSX: H) (“Hydro One”), an electricity transmission and distribution company, since April 2023. Mr. Lopez joined Hydro One in 2016 and served as its Chief Financial Officer from May 2019 to April 2023, Acting Chief Financial Officer from September 2018 to May 2019 and Senior Vice President, Finance, from 2016 to 2018. Prior to that, Mr. Lopez served as Vice President, Corporate Planning and Mergers & Acquisitions at TransAlta Corporation (TSX: TA) (“TransAlta”), a clean energy solutions company, from 2011 to 2015, as Director of Operations Finance at TransAlta from 2007 to 2011, and in various senior financial roles with TransAlta from 1999 to 2007. At the start of his career, he worked as a financial accountant following the completion of the Graduate Leadership Development Program, with Rio Tinto Group. Mr. Lopez received a Bachelor of Business degree from Edith Cowan University in Australia, and he holds a Chartered Accountant designation. He is a Graduate member of the Australian Institute of Company Directors and has completed the CFO Leadership Program at Harvard Business School.
Robert A. Schriesheim is a multiple time public company director, CFO and corporate strategist who is an expert in restructuring and complex financial transactions. Mr. Schriesheim is currently the Lead Independent Director and Chair of the Audit Committee at Houlihan Lokey, Inc. (NYSE: HLI), a global investment bank, and serves on the board of directors of Skyworks Solutions, Inc. (NASDAQ: SWKS), a leading semiconductor products design and manufacturing company. Mr. Schriesheim has served as chairman of Truax Partners LLC, a consulting firm, since 2018, through which he partners with, and advises, boards, CEOs and institutional investors while serving as a director of public and private companies undergoing complex transformations. From 2018 until 2021, he served as a director of Frontier Communications Corporation (formerly NASDAQ: FTR) (n/k/a Frontier Communications Parent, Inc. (NASDAQ: FYBR)), a provider of communications services (“Frontier”), where he served as a member of the Audit Committee and as chairman of the Finance Committee, overseeing Frontier’s financial restructuring and reorganization, including its emergence from Chapter 11 in 2021. Mr. Schriesheim previously served as the Executive Vice President and Chief Financial Officer of Sears Holdings Corporation (formerly NASDAQ: SHLD), an American holding company, from 2011 until 2016, and as the Chief Financial Officer of Hewitt Associates, Inc. (formerly NYSE: HEW), a global human resources consulting and outsourcing company, from 2010 until its sale in 2010. From 2006 to 2009, he served as Executive Vice President and Chief Financial Officer of Lawson Software, Inc. (formerly NASDAQ: LWSN), an ERP software provider and as a board member from 2006 until its sale in 2011. Prior to that, he was affiliated with ARCH Development Partners, LLC, a seed stage venture capital fund and earlier he held executive positions at Global TeleSystems, SBC Equity Partners, Ameritech, AC Nielsen and Brooke Group Ltd. From 2015 until its sale in 2019, he served as a director of NII Holdings, Inc. (formerly NASDAQ: NIHD), a wireless communications company. From 2018 to 2018, he also served as a director of Forest City Realty Trust, Inc. (formerly NYSE: FCE.A), a real estate investment trust, and served as the chair of its audit committee until its sale to Brookfield Asset Management. From 2007 until its sale in 2009 he served as a director, including as Co-Chairman, of MSC Software (NASDAQ: MSCS), a provider of simulation software and from 2004 until its sale in 2007 he served as a director of Dobson Communications (NASDAQ: DCEL), a rural cellular provider. He also currently serves as an Adjunct Associate Professor of Finance at The University of Chicago Booth School of Business concentrating in the area of corporate governance. Mr. Schriesheim earned an AB in Chemistry from Princeton University and an M.B.A. from the University of Chicago Booth School of Business.
About Starboard Value LP
Starboard Value LP is an investment adviser with a focused and differentiated fundamental approach to investing in publicly traded companies. Starboard invests in deeply undervalued companies and actively engages with management teams and boards of directors to identify and execute on opportunities to unlock value for the benefit of all shareholders.
Information in Support of Public Broadcast Solicitation
Starboard is relying on the exemption under section 9.2(4) of National Instrument 51-102 - Continuous Disclosure Obligations (“NI 51-102”) to make this public broadcast solicitation. The following information is provided in accordance with corporate and securities laws applicable to public broadcast solicitations.
This solicitation is being made by Starboard, and not by or on behalf of the management of Algonquin. The participants in the solicitation are anticipated to be Starboard Value and Opportunity Master Fund III LP, Starboard Value and Opportunity S LLC, Starboard Value and Opportunity C LP, Starboard X Master Fund II LP, Starboard Value R LP, Starboard Value and Opportunity Master Fund L LP, Starboard Value L LP, Starboard Value R GP LLC, Starboard G Fund, L.P., Starboard Value G GP, LLC, Starboard Value A LP, Starboard Value A GP LLC, Starboard Value LP, Starboard Value GP LLC, Starboard Principal Co LP, Starboard Principal Co GP LLC, Peter A. Feld, Jeffrey C. Smith (which persons are collectively referred to in this section as “Starboard”), and the Starboard Nominees. The address of Algonquin is 354 Davis Road, Suite 100 Oakville, Ontario L6J 2X1.
Starboard has filed this news release containing the information required by section 9.2(4)(c) of NI 51-102 and has filed a separate document containing the information required by Form 51-102F5 – Information Circular in respect of the Starboard Nominees, as required by section 9.2(6) of NI 51-102, on Algonquin’s company profile on SEDAR+ at www.sedarplus.ca.
In connection with the Annual Meeting, Starboard may file a dissident information circular in due course in compliance with applicable securities laws and intends to solicit proxies primarily by mail, but proxies may also be solicited personally by telephone, e-mail or other electronic means, as well as by newspaper or other media advertising or in person, by Starboard, certain of its members, partners, directors, officers and employees, the Starboard Nominees or Starboard’s agents, including a third party proxy solicitation agent and tabulation agent to assist with Starboard’s solicitation and to provide certain advisory and related services. Such solicitation agent has not yet been retained by Starboard. It is expected that, upon engagement of such agent, such agent’s responsibilities will include advising Starboard on governance best practices, liaising with proxy advisory firms, developing and implementing shareholder communication and engagement strategies, advising with respect to meeting and proxy protocol, developing and implementing shareholder communication and engagement strategies, mailing of the Annual Meeting materials and vote tabulation. Starboard will pay such agent a fee to be determined, plus related expenses. In addition, Starboard may solicit proxies in reliance upon the public broadcast exemption to the solicitation requirements under applicable Canadian corporate and securities laws, conveyed by way of public broadcast, including press release, speech or publication and any other manner permitted under applicable Canadian laws. Any members, partners, directors, officers or employees of Starboard and its affiliates or other persons who solicit proxies on behalf of Starboard will do so for no additional compensation.
The costs incurred in the solicitation will be borne by Starboard. However, to the extent permitted under applicable law, Starboard may seek reimbursement from Algonquin for Starboard’s out-of-pocket expenses, including proxy solicitation expenses and legal fees, incurred in connection with the Annual Meeting.
Although no forms of proxy have been provided at this time, a registered holder of common shares of Algonquin that gives a proxy may revoke it by: (a) completing and signing a valid proxy bearing a later date and returning it in accordance with the instructions contained in the form of proxy to be provided by Starboard, or as otherwise provided in the applicable information circular; (b) depositing an instrument in writing executed by the shareholder or by the shareholder's attorney authorized in writing, as the case may be (i) at the registered office of Algonquin at any time up to and including the last business day preceding the day the Annual Meeting or any adjournment or postponement thereof is to be held, or (ii) with the chairman of the Annual Meeting prior to its commencement on the day of the Annual Meeting or any adjournment or postponement thereof; or (c) revoking their proxy in any other manner permitted by law.
Although no forms of proxy have been provided at this time, a non-registered holder of common shares of Algonquin will be entitled to revoke a form of proxy or voting instruction form given to an intermediary at any time by written notice to the intermediary in accordance with the instructions given to the non-registered holder by its intermediary. It should be noted that revocation of proxies or voting instructions by a non-registered holder can take several days or even longer to complete and, accordingly, any such revocation should be completed well in advance of the deadline prescribed in the form of proxy or voting instruction form to ensure it is given effect in respect of the Annual Meeting.
To the knowledge of Starboard, none of Starboard, or any of its partners, managing members, directors or officers or any of its associates or affiliates, nor any of the Starboard Nominees or their respective associates or affiliates, has any material interest, direct or indirect, (i) in any transaction since the beginning of Algonquin's most recently completed financial year or in any proposed transaction that has materially affected or would materially affect Algonquin or any of its subsidiaries; or (ii) by way of beneficial ownership of securities or otherwise and subject to Algonquin disclosing the matters proposed to be acted on at the Annual Meeting, in any matter proposed to be acted on at the Annual Meeting, other than the election of directors to the Board or the appointment of the auditors.
_____________________________________
1Source: Capital IQ. Market data as of March 20, 2024. Performance is measured as total shareholder return adjusted for dividends across a 1Y, 3Y, and 5Y period for AQN vs. the average of its Regulated utility peer group. Regulated utility peer group includes AEE, AGR, AEP, CMS, CNP, CU, D, DTE, DUK, ED, EMA, ES, FTS, H, LNT, NEE, PNW, SO, SR, SRE, WEC, and XEL. Starboard has identified the aforementioned peers as the relevant peer set. Starboard believes these peers provide appropriate peer comparisons and align with the Company’s self-selected peer set as of its January 12, 2023 Investor Update presentation. This determination is subject to a certain degree of subjectivity. As the full universe of potential peers is not listed here, the comparisons made herein may differ materially if other firms had been included.
https://www.businesswire.com/news/home/20240321229237/en/
Enterprising Investor
9 months ago
Starboard Sends Letter to Algonquin Power & Utilities Regarding Opportunities to Enhance Shareholder Value (7/06/23)
Believes a Properly Executed Sale of All or a Substantial Majority of the Company's Unregulated Renewables Business can Accelerate Efforts to Delever, Lower the Dividend Payout Ratio and Restore Investor Confidence
Delivers Specific Suggestions to Help Guide Algonquin's Publicly Disclosed Review Process for the Unregulated Renewables Business
Looks Forward to Continuing to Constructively Engage with the Board and its Strategic Review Committee
NEW YORK, July 6, 2023 /PRNewswire/ -- Starboard Value LP today issued the below letter to Algonquin Power & Utilities Corp. regarding opportunities to enhance shareholder value.
July 6, 2023
Kenneth Moore, Chair
Christopher Huskilson, Strategic Review Committee Chair
Algonquin Power & Utilities Corp.
354 Davis Road
Oakville, Ontario
Canada L6J 2X1
CC: Board of Directors
Arun Banskota, President and Chief Executive Officer
Darren Myers, Chief Financial Officer
Dear Chris and Ken,
Starboard Value LP (together with its affiliates, "Starboard" or "we") recently filed a Schedule 13D disclosing an economic ownership stake of approximately 7.5% in Algonquin Power & Utilities Corp. ("Algonquin" or the "Company"), making us the Company's largest shareholder. We appreciate the time that members of the Board of Directors (the "Board") and management have spent with us over the past several months.
As we have discussed, we believe Algonquin's Regulated Services Group is a top tier regulated utility that is currently valued at a substantial implied discount to peers pro forma for a potential sale of all or a substantial majority of the Company's unregulated renewables assets. Even without Algonquin's unregulated renewables business (the "Renewable Energy Group"), Algonquin is significantly greener than peers, with approximately one-third of its electric generation capacity coming from renewables and no coal exposure, compared to an average of 26% for its regulated utility peers1. Moreover, approximately 20% of Algonquin's rate base comes from its extremely valuable Regulated Water Reclamation and Distribution business (the "Water Utility"), which generally trade at double the multiples of Electric and Gas utilities2, compared to approximately zero water distribution exposure for Algonquin's peers. It is also important to highlight that Algonquin has historically grown its rate base faster than peers3, and we believe it has the opportunity to continue to grow faster than peers as a result of its unique global footprint of small-to-medium scale utilities. In other words, we believe the remaining regulated utility business, once the unregulated business is sold, should be highly attractive to public market investors.
Algonquin's valuation has been hampered by a number of factors, most notably excessive leverage and a high dividend payout ratio. Algonquin's high payout ratio, its recent dividend cut, its high proportion of unregulated assets, and scars from the recently-abandoned Kentucky Power deal have all combined to make Algonquin uninvestible for a large portion of traditional utility investors.
Fortunately, we believe these problems can be solved through a sale of all or a majority of the Renewable Energy Group. Pro forma for such a sale, we believe Algonquin would have lower leverage, a safer dividend, a greener asset base, and higher rate base growth than peers, and should be afforded a higher valuation.
As discussed, while there is tremendous upside to a sale of the Renewable Energy Group, it is critical that it be done in the right way and executed skillfully. Most importantly, the process should be driven by objectives for what Algonquin should look like following a divestiture of the Renewable Energy Group. In particular, we believe your key objectives should be:
Reduce leverage to industry-standard levels of approximately 5x gross leverage4. Once target leverage levels have been achieved, excess proceeds should be used to repurchase shares of Algonquin to drive EPS accretion.
Improve EPS as much as possible, so that the dividend payout ratio is in-line with peers, with room for increases. As we have discussed, we believe a target of 75 cents in FY 2025 EPS5 is achievable.
In our view, the best path to achieving these objectives is through a sale of the substantial majority of Algonquin's renewables assets, including the Company's ~42% stake in Atlantica Sustainable Infrastructure PLC ("Atlantica"). This could entail a sale of the entire Renewable Energy Group as a whole, or multiple transactions for the majority of the unregulated renewables assets, while keeping certain assets that have strategic value and would allow the Company to achieve even higher pro forma EPS, with an even greener asset base and a higher growth profile. In either case, the Company would receive a substantial influx of cash with which to pay down debt and repurchase shares. Algonquin would become, what we view as, a best-in-class mid-sized utility with a highly attractive financial profile where the significant majority of earnings come from stable, regulated businesses.
While the immediate priority is untangling the Company's unregulated renewables business in a manner that creates substantial value for shareholders, a close second is ensuring that shareholders can realize the potential of Algonquin's extremely valuable Water Utility. Pro forma for a renewables sale, approximately 20% of Algonquin's asset base will be from its Water Utility, making it one of the only companies in its peer group with any water reclamation and distribution exposure. Water utilities generally trade at massive premiums to Electric/Gas utilities. As such, we would expect Algonquin, with its Water Utility, to trade at a premium to other regulated utilities. If it does not, Algonquin has the opportunity to create substantial additional value through a separation of the Water Utility business. For example, if, following the sale of the Renewable Energy Group, Algonquin were to also sell its Water Utility and use the majority of the proceeds to repurchase shares, we believe that it could increase pro forma EPS to nearly 90 cents6. Even after selling the Water Utility, Algonquin would still be greener than the majority of its peers, since its peers on average contain no water distribution exposure and get 26% of their electric power from coal. The Water Utility is a hidden gem within Algonquin's portfolio, and its value should not be overlooked.
We look forward to continuing our discussions in order to ensure that maximum value is created for all Algonquin shareholders.
Sincerely,
Jeffrey C. Smith
Managing Member
Starboard Value LP
***
About Starboard Value LP
Starboard Value LP is a New York-based investment adviser with a focused and differentiated fundamental approach to investing primarily in publicly traded U.S. companies. Starboard invests in deeply undervalued companies and actively engages with management teams and boards of directors to identify and execute on opportunities to unlock value for the benefit of all shareholders. Learn more at www.starboardvalue.com.
Contacts
For Investors:
Peter Feld, (212) 201-4878
Gavin Molinelli, (212) 201-4828
www.starboardvalue.com
1 Regulated utility peer group includes AEE, AEP, CMS, CNP, CU, D, DTE, DUK, ED, EMA, ES, FTS, H, LNT, NEE, PNW, SO, SR, SRE, WEC, and XEL. Starboard has identified the aforementioned peers as the relevant peer set. Starboard believes these peers provide appropriate peer comparisons and align with the Company's self-selected peer set. This determination is subject to a certain degree of subjectivity. As the full universe of potential peers is not listed here, the comparisons made herein may differ materially if other firms had been included.
2 Water utility peer group includes ARTNA, AWK, AWR, CWCO, CWT, GWRS, MSEX, SJW, WTRG, and YORW. Starboard has identified the aforementioned peers as the relevant peer set for comparing AQN's regulated water utility business. Starboard believes these peers provide appropriate peer comparisons. This determination is subject to a certain degree of subjectivity. As the full universe of potential peers is not listed here, the comparisons made herein may differ materially if other firms had been included.
3 Organic growth of 8% from FY2017 to FY2022 vs. regulated utility peer median of 7%.
4 As we have discussed, investors and ratings agencies will consider a number of factors in determining the Company's credit quality, including FFO / Debt and the mix of regulated assets. We use Gross Debt / EBITDA as a proxy for leverage levels when comparing across the peer group, but the Company will need to determine the right pro forma debt level while considering all of these factors in conjunction with rating agency requirements.
5 EPS estimate is based on information obtained from sources believed to be reliable and incorporates certain assumptions. Such information and assumptions could turn out to be inaccurate. Starboard's estimate included here is based on several data points.
6 EPS estimate is based on information obtained from sources believed to be reliable and incorporates certain assumptions. Such information and assumptions could turn out to be inaccurate. Starboard's estimate included here is based on several data points.
SOURCE Starboard Value LP
https://www.prnewswire.com/news-releases/starboard-sends-letter-to-algonquin-power--utilities-regarding-opportunities-to-enhance-shareholder-value-301871169.html
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