Starboard Value sends letter to Algonquin Power & Utilities

Starboard Value LP issued the below letter to Algonquin Power & Utilities Corp. regarding opportunities to enhance shareholder value. “Starboard Value recently filed a Schedule 13D disclosing an economic ownership stake of approximately 7.5% in Algonquin Power & Utilities Corp, making us the Company’s largest shareholder… As we have discussed, we believe Algonquin’s Regulated Services Group is a top tier regulated utility that is currently valued at a substantial implied discount to peers pro forma for a potential sale of all or a substantial majority of the Company’s unregulated renewables assets… Algonquin’s valuation has been hampered by a number of factors, most notably excessive leverage and a high dividend payout ratio. Algonquin’s high payout ratio, its recent dividend cut, its high proportion of unregulated assets, and scars from the recently-abandoned Kentucky Power deal have all combined to make Algonquin uninvestible for a large portion of traditional utility investors. Fortunately, we believe these problems can be solved through a sale of all or a majority of the Renewable Energy Group. Pro forma for such a sale, we believe Algonquin would have lower leverage, a safer dividend, a greener asset base, and higher rate base growth than peers, and should be afforded a higher valuation… In particular, we believe your key objectives should be: Reduce leverage to industry-standard levels of approximately 5x gross leverage4. Once target leverage levels have been achieved, excess proceeds should be used to repurchase shares of Algonquin to drive EPS accretion. Improve EPS as much as possible, so that the dividend payout ratio is in-line with peers, with room for increases. As we have discussed, we believe a target of 75 cents in FY 2025 EPS5 is achievable.”