According to Elliott and Bluescape, as the size of Sempra Energy's enterprise has grown, so has the company's valuation gap. "This persistent and substantial undervaluation stems from a focus on sheer size that has permeated management and Board thinking," Elliott and Bluescape leadership said in a letter to Sempra's board. "This has led to the creation of a conglomerate structure consisting of disparate businesses grouped together with no compelling strategic or financial rationale." The proposal would shed several business units and turn Sempra's focus to two areas: distribution utilities and liquefied natural gas. Up for sale would be energy companies in Mexico, Peru and Chile, along with Sempra Renewables, which has 1.66 GW of long-term contracted wind and solar capacity. They estimated the sale of wind and solar assets at $1,500/kW to 1,650/kW change-of-control value, minus a $631 million non-controlling interest. Remaining would be distribution electric utilities Southern California Gas and San Diego Gas & Electric in California, as well as Oncor Electric in Texas, which Sempra bought this year. On the LNG side, the company would retain stakes in Cameron LNG, Port Arthur LNG, and Sempra LNG & Midstream. Sempra Energy has traded near $100/share recently, but news of the proposal sent the stock up 15%. Bluescape and Elliott say their plan could result in stocks rising to $139/share to $158/share. Sempra issued a statement in response to the letter and presentation, saying it is "committed to an open dialogue with all shareholders and considers investor perspectives in the context of the company’s existing strategy and opportunities to deliver long-term shareholder value." "Our board and management will review their letter and presentation in detail and respond in due course." Along with the international energy assets, the renewables business is "attractive but noncore," the investors say. Elliott and Bluescape called their plan a “back to basics” approach. "This more focused approach will enable Sempra to unlock capital to reinvest locally in critical infrastructure with no net increase in utility customer rates," they said. The investors also recommend padding the board with more industry experience, noting that only three of Sempra's 12 independent directors currently have utility industry experience. "The Board today lacks key industry and capital allocation know-how and credibility," the investors wrote in their presentation.
Investors Sempra Management and Bluescape Resources, which hold 4.9% of total shares, have written to Elliott Energy calling for the company to shed several "attractive but non-core" units and focus on distribution utilities and liquefied natural gas. The move could see the divestment of wind and solar capacity totalling 1.66 GW, as well as energy companies in Chile, Mexico and Peru. Sempra and Bluescape claim the move would raise the company's valuation by $11bn to $16bn. They also wish to bring more utility experience to Elliott's board. Elliott said it would reply to the proposal "in due course".