Algonquin Power & Utilities Corp.’s Riviere-du-Loup hydroelectric generating facility in Quebec.Courtesy of Algonquin Power
Algonquin Power and Utilities Corp. AQN-T announced on Thursday that it will pursue a sale of its renewable energy division, putting the company onside with activist investors who had pushed for a restructuring that would transform Algonquin into a stand-alone utility that delivers electricity, water and natural gas.
The company also announced that Arun Banskota has stepped down as chief executive officer. Chris Huskilson, a member of the board of directors since 2020 and CEO of Emera Inc. EMA-T until 2018, was appointed interim CEO.
“We are confident that the intended sale will unlock Algonquin’s value as a pure-play regulated utility by simplifying our structure,” Mr. Huskilson said in a statement.
The proceeds from the renewables sale will be used to reduce debt and fund stock buybacks. The transaction will support the current dividend, reduce the company’s cost of capital and maintain its investment-grade credit rating.
Ancora Holdings Group LLC, an activist investor that had supported the restructuring, declined to comment. Two other activist investors, Corvex Management LP and Starboard Value LP, did not immediately respond to a request for comment.
The shakeup continues a tumultuous period for the company, which had been embraced by investors in previous years for its steady growth, rising dividend and exposure to wind and solar power generation in the United States and Canada.
Algonquin Power was a go-to green stock. Now, it faces pressure to jettison its clean energy assets
But high debt levels, rising borrowing costs and disappointing financial results in late 2022 led to Algonquin slashing its quarterly distribution by 40 per cent in January, terminating a deal to acquire Kentucky Power Co. in April and announcing a strategic review of its renewable energy assets in May.
The announcement that Algonquin will sell its renewables division, which drove about 30 per cent of the company’s operating profit in the second quarter, arrived on the same day it reported quarterly financial results that fell short of some analysts’ estimates.
For the three months ended June 30, Algonquin reported a loss of US$253.2-million, compared with a loss of US$33.4-million in the same period in 2022.
Adjusted net earnings, which exclude the change in value of Algonquin’s ownership stake in Atlantica Sustainable Infrastructure PLC and costs associated with the termination of the Kentucky Power deal, were US$56.2-million, or 8 cents per share, down from US$109.6-million, or 16 cents per share, last year.
Algonquin attributed some of the decline in quarterly profits to weather-related issues that reduced energy demand and power generated by its wind power assets, as well as higher interest payments on its short-term debt.
The company’s share price fell by 1.3 per cent in Toronto to close at $10.29.
During a conference call with analysts on Thursday morning, Mr. Huskilson gave no indication of when a sale of the renewables assets might take place. He declined to comment on the expected price as well, though he told an analyst he believes there is more value in selling the assets as one block rather than in parts.
He said the remaining regulated utility assets, which are heavily concentrated in Missouri, California, New Hampshire and New York, have “upside potential that can be unlocked through more focus on organic growth strategies, concluding a simpler business model and a more disciplined approach to capital.”
Some observers warn that the current environment for a sale is far from ideal, though.
“We continue to believe that it may not be an ideal time to divest the renewables business due to the high interest rate environment and a recent U.S. utility that divested its renewables business did not achieve an attractive valuation,” Nelson Ng, an analyst at RBC Capital Markets, said in a note.
Still, activist investors and some analysts have argued that the renewables division led to complexities that weighed on the entire company as it grew larger. Algonquin appears to agree with this assessment.
Mr. Huskilson said that current debt ratios were probably not right for a pure-play utilities business, while the investment-grade credit rating is likely higher than the rating required by the renewables business. What’s more, he said that the parent company had to restrain the capital going into the renewables business.
“So when you put all those factors together, that’s really why the integrated business wasn’t going to continue working. It wasn’t sustainable any more, in the state that it was in,” Mr. Huskilson said.