Paul Singer’s Elliott Management and Bluescape Resources have kicked off an activist campaign intended to bring change to Sempra Energy’s make-up, including a proposed shareholder spin-off of its LNG units. The two investors hold 4.9% of Sempra.
A presentation putting forward the case for change said if the proposals were accepted they would increase the company’s value by US$11-14 billion – an increase of 38-57%.
A non-committal statement from Sempra, on June 11, said the company would consider the proposals and was “committed to an open dialogue” with shareholders. Investors appeared to welcome the suggestion, with Sempra’s share price rising by around 15% in a day.
Sempra has a 50.2% stake in the three-train 12 million tpy Cameron LNG project, which is expected to start up in 2019. This should produce free cash flow of US$550 million or more, from 2020, the activists said. This is a more bullish forecast than that from Sempra, which has said it could earn US$300-350 million in 2020, although this should rise over time as debt taken out to build the plant is paid down.
In addition, it has gas storage assets on the Gulf Coast, the Cameron Interstate Pipeline and potential opportunities in Port Arthur, Energia Costa Azul and the P2K pipeline.
Creating an LNG-focused company from Sempra’s assets might be worth US$11-12 billion, the presentation said.
The gist of the complaints came from the view that Sempra combines too many businesses. “Sempra’s growth strategy relies on siphoning earnings and creditworthiness from its core California utilities and deploying that capital into various unrelated businesses with poor returns and results,” the presentation said.
Leading the list of complaints, said to have resulted from Sempra’s wide-ranging asset base, were delays at the Cameron LNG project. The project has been pushed back by 12 months, unlike Cheniere Energy’s facilities, which have been completed ahead of time. Such large projects, the activist investors said, require more involved management. Substantial completion had been targeted for November 2018.
“In 2016, Sempra management was not aware of any delay until notified by the contractor and was ill-equipped to respond,” it said.