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Not all activist campaigns are equally highly charged. Some cage-rattling shareholders launch all-out political campaigns, demanding complete strategic overhauls. Others are defused with relatively minor concessions. Markus Krebber, chief executive of German utility RWE, has a chance to make sure his experience is of the latter type.
Elliott Management, which has built a near 5 per cent exposure to RWE, on Monday called on Krebber to “significantly increase and accelerate” the utility’s €1.5bn share buyback to address its “persistent undervaluation”. RWE is one of several European energy companies targeted by the hedge fund; it also has a near 5 per cent stake in BP.
In RWE’s case, this should not be a long drawn-out affair. Much of what the market disliked about the 127-year-old German company is already on the way to being fixed.
Coal, for example. The phase out of its legacy coal plants in Germany, planned for 2030, is one step in the right direction. These were getting in the way of RWE’s reinvention as a gas-and-renewables electricity generation business, and contributed to its persistent undervaluation. Its enterprise value is currently 6.1 times forecast 2025 ebitda on FactSet estimates, a discount of roughly 30 per cent compared to a basket of European renewables and utility peers.
Another problem is that RWE was slower than many rivals to trim its capital expenditure plans after the tide turned against renewables. It took until last November to initiate a pullback on its target to invest €55bn in green technologies globally between 2024 and 2030.
If one thing remains up for debate, then, it’s what RWE will do with its surplus cash. At its full-year results last week, it clarified that it would slash €10bn from its investment plans between now and 2030 — roughly 25 per cent of what it had intended to spend — but offered no clarity on when or whether those savings might come back to investors in the form of increased share buybacks.
It might just be a question of timing. RWE has already committed €7bn to capital expenditure this year. There will be more flexibility in how the group can allocate capital from next year, Krebber insisted. RWE also intends to sell some assets, so the eventual amount of cash it has to play with may change.
Once the idea of cash returns takes root in investors’ minds, though, it is hard to dislodge. Krebber could do worse than step up RWE’s buyback plans, at least while he works out how to nip this particular activist campaign in the bud.
nathalie.thomas@ft.com
