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Updated with Statement from NRG

Elliott Investment Management Seeks Strategic Review Of NRG Energy Home Services Businesses, Including Vivint

Elliott Alleges, "The Vivint Transaction Ranks As The Single Worst Deal In The Power And Utilities Sector During The Past Decade"

Elliott Alleges, "NRG’s Retail Cost Structure Has Also Escalated Since 2018 And Has Become Uncompetitive Against Peers"

May 12, 2023

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Copyright 2010-23
Reporting by Paul Ring •

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NRG has provided the following statement concerning the matter:

NRG’s Board and management are committed to creating long-term value for our customers and our shareholders. We have received Elliott’s materials and look forward to an open dialogue.

--- Statement from NRG Energy


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" or the "Company"), today sent a letter to the Board of Directors of NRG, which, among other things, seeks a strategic review of NRG's home services businesses

"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 said

"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," Elliott said

Elliott said, "NRG has sharply pivoted away from the parameters of the [2017] Transformation Plan and now resembles the unfocused company that we first encountered six years ago. Since the conclusion of our involvement, NRG has suffered operational setbacks, missed financial guidance, and -- with the recent acquisition of Vivint, a home security business with stark operational differences to NRG's core power businesses -- regressed to the same unfocused, overleveraged business model that predated our initial involvement."

Elliott said, "NRG lost strategic direction with its poorly conceived, 'all-in' pivot to the home security business founded on the acquisition of Vivint. We and other investors struggle to understand why NRG would make such a significant bet on a strategy that many other companies have already failed to execute successfully, especially given the Company's previous lack of success in entering home services. The market's reaction to the Vivint transaction -- a 20% decline in NRG's market capitalization over the first week, or nearly $2 billion in value loss – was both predictable and justifiable. As measured by the share price reaction following its announcement, the Vivint transaction ranks as the single worst deal in the power and utilities sector during the past decade [Measured among transactions announced since 2013 in which the buyer is a power or utility company and the target TEV is greater than $1 billion.]. The transaction continues to draw near-universal skepticism among investors and sell-side analysts."

"As evidenced by the strong outperformance by NRG in 2017 and 2018, we are convinced that an optimized NRG focused on its core integrated power business can drive compelling shareholder returns. For this reason, NRG must conduct a strategic review of its home services strategy, including Vivint. In conjunction, NRG should establish a new capital allocation framework to return to shareholders at least 80% of free cash flow, with any growth investments focused on its generation and retail businesses. By implementing the Repower NRG Plan, the Company would have the ability to return $6.5 billion of excess capital, or approximately 85% of NRG's current market cap, to shareholders over the next three years," Elliott said

Elliott said in a presentation that, "Vivint is a Poor Strategic Fit for NRG. NRG and Vivint are fundamentally distinct businesses – with different cash flow profiles, different sales propositions, and limited geographic overlap."

Elliott alleged in a presentation that, "NRG’s acquisition of Vivint is a $6 billion bet premised on the same promises of 'cross-selling' and 'revenue synergies' that have already proven to be ineffective and is deeply concerning given NRG’s historical lack of success in home services," as Elliott cited NRG's prior ventures including NRG Home Solar and EVgo

Elliott alleged that core NRG's (energy) customer acquisition cost is ~$75 - $300 dollars per residential customer with a ~12 month payback, while alleging that Vivint's is over $2,000 per customer on a gross basis with a 2-3 year payback

Elliott under the home services strategic review envisions $1.0 billion – $2.0 billion of target net equity proceeds or value realization from divestiture or tax-free spinoff of Vivint

Elliott also seeks to deconsolidate $2.7 billion of Vivint debt from NRG’s balance sheet

Elliott also alleged, "NRG’s retail cost structure has also escalated since 2018 and has become uncompetitive against peers. Furthermore, there is little evidence of cost rationalization following the Company’s acquisition of Direct Energy."

Elliott alleged NRG's Retail Cost per RCE, excluding Direct Energy RCEs, is $150, versus $99 for Vistra, and $108 for Just Energy

Elliott's full letter to NRG is here


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