Saying Sempra Energy's various parts are worth more separately than in their current bundle, activist investors Elliott Management Corp. and Bluescape Resources Co. LLC on June 11 laid out a "back to basics" plan to extract additional value.
The hedge funds say the transition to a "Sustainable Sempra" could create $11 billion to $16 billion of additional shareholder value through a spinoff of midstream and LNG assets, the divestiture of three businesses in Mexico and South America that generated more than $2 billion in 2017, and the sale of renewable energy assets in the U.S.
Elliott and Bluescape recommended the sale of merchant power plants owned by Sempra Renewables LLC. The company's current generating capacity is split evenly between solar and wind projects, at 817 MW each across a total of 23 facilities. The output of every facility is secured under a power purchase agreement. PG&E Corp. subsidiary Pacific Gas and Electric Co. holds the most contracted capacity from these plants.
The divestiture recommendation includes three of Sempra’s international businesses, which in the presentation were deemed "attractive, but non-core." The businesses include Infraestructura Energetica Nova S.A.B. de C.V., a Mexico-based energy infrastructure company primarily focused on natural gas transportation and distribution, and which generated more than $900 million of utility revenue in 2017. Two other businesses are Luz del Sur SAA, the largest electric utility in Peru, and Chilquinta Energia SA, the third-largest electric utility in Chile. In 2017, the two utilities generated more than $1.5 billion in utility revenues.
Elliott and Bluescape recommend that San Diego-headquartered Sempra retain its regulated U.S. utilities, which include San Diego Gas & Electric Co. and Southern California Gas Co., and since March an 80% interest in Texas electric distribution utility Oncor Electric Delivery Co. LLC. Combined, these utilities served 4.8 million electric customers and 6.8 million natural gas customers in 2016, generating more than $9.8 billion in retail revenue.
Sempra's midstream and LNG businesses, including Sempra LNG & Midstream, and the Cameron and Port Arthur LNG projects, would be spun off into a separate publicly traded entity.
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