(Bloomberg) — Algonquin Power & Utilities Corp. is selling its renewable energy business to a subsidiary of LS Power for up to $2.5 billion under pressure from an activist investor.
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Shareholder Starboard Value LP has been pushing for a sale of the renewable energy business for over a year, saying such a deal would lead to lower debt and ultimately a higher valuation.
“Overall, I would expect people at Starboard to be happy,” said David Quezada, a research analyst at Raymond James.
Utilities such as American Electric Power Co. Inc. and Duke Energy Corp. have been selling off their renewable energy assets as investors urge the companies to focus on their regulated businesses, which typically produce stable earnings and reliable dividends.
Under Jeffrey Smith’s leadership, Starboard has raised concerns with Algonquin about succession planning, poor balance sheet management and a failed attempt to buy Kentucky utilities from AEP. In June, Algonquin brought on board two board members nominated by Starboard.
Algonquin fell as much as 15 percent on Friday after the company cut its dividend. Shares have fallen about 11 percent this year.
The sale of the renewable energy division is part of the plan to make Algonquin a “purely regulated energy provider,” CEO Christopher Huskilson said on a conference call on Friday. He added that Algonquin is for the first time “a focused company with a unique business model.”
In May, Energy Capital Partners agreed to acquire Atlantica Sustainable Infrastructure Plc, an owner of renewable energy assets. Algonquin owns about 42 percent of Atlantica, according to Bloomberg.
LS Power said in a statement that the Algonquin deal announced Friday includes operations of wind and solar facilities as well as wind, solar, battery storage and renewable gas projects in various stages of development.
The Canadian utility will receive approximately $2.3 billion in cash upon completion of the transaction, subject to certain adjustments, and up to $220 million in cash through an earn-out agreement relating to certain wind assets, it said in a statement Friday. The deal, which did not include Algonquin’s hydroelectric assets, was unanimously approved by the board.
The transaction is expected to close in the fourth quarter of 2024 or the first quarter of 2025, the company said.
– With support from Crystal Tse.
(Story updates with analyst commentary, information from the quarterly earnings call and background information.)
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