Elliott Investment Management L.P. ("Elliott"), which manages funds that have an investment of approximately $1 billion representing a more than 13% economic interest in NRG Energy, Inc. (NRG) ("NRG"), sent a letter to the Board of Directors of NRG. According to the letter, the purpose of the materials is to present a clear path forward for how best to remedy NRG's meaningful underperformance and create significant and sustainable value.
Elliott previously disclosed a large investment in NRG in 2017, and its engagement with the Company catalyzed the highly successful Transformation Plan and resulted in NRG becoming the best-performing stock in the S&P 500 in that year, Elliott wrote. In its letter, Elliott said that since the conclusion of its prior engagement with NRG, the Company has meaningfully underperformed due to a number of operational and strategic missteps. Among the missteps, Elliott wrote, is the Company's recent acquisition of Vivint, which, measured by the one-week market reaction following its announcement, was the single worst deal in the power and utilities sector in the past decade.
In its letter, Elliott outlined the necessary steps for the Company to take to right the course in the following three areas:
- Leadership: Add new independent directors with strong power and energy industry expertise to refresh the Board and help guide the necessary changes
- Operations: Improve operations and reliability. Achieve at least $500 million of recurring, EBITDA-accretive cost reductions
- Strategy and Capital Allocation: Conduct a strategic review of its home services strategy, including Vivint. In conjunction, establish a new capital allocation framework to return to shareholders at least 80% of free cash flow, with growth investments focused on its generation and retail businesses
Elliott believes that successful execution of this plan could create over $5 billion of shareholder value, driving the Company's stock price to reach or exceed $55 per share, the letter said. Elliott looks forward to meeting with the Board in the near term to work constructively with the Company toward the implementation of a new value creation plan.