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Houston-based NRG Energy Inc. (NYSE: NRG) is starting the search for a new president and CEO and making other changes in response to pressure from an activist investor.
Former President and CEO Mauricio Gutierrez departed from the company and resigned from the board of directors, NRG said Nov. 20. Lawrence Coben, chair of NRG's board, was named interim president and CEO, and NRG director Anne Schaumburg has been appointed lead independent director. Gutierrez's departure and the appointments were effective Nov. 17, according to information NRG filed with the U.S. Securities and Exchange Commission.
The retail power and home services company said it "retained a leading search firm" to assist with the search for a permanent CEO, which has already begun, but did not name the firm.
“Larry’s experience as chair of NRG’s board of directors, together with his experience as a CEO and as an investor in many companies in the energy industry, provide a cross-section of skills that make him well-suited to serve as interim president and chief executive officer," Heather Cox, chair of the Governance and Nominating Committee of the NRG board, said. "We are confident that Larry’s stewardship, with the support of NRG’s strong executive management team, will continue to drive the strategy and business forward while the CEO search is conducted.”
The departure of Gutierrez comes after activist investor Elliott Investment Management LP called for NRG to name a new CEO earlier this year.
As of June, Elliott managed funds that hold a more than 13% economic interest in NRG. On June 27, Elliott released its second letter to NRG's board of directors claiming that the company's management has not met its capital-allocation promises or its financial commitments, among other issues.
In addition to calling for a new CEO, Elliott also urged NRG's board to add new directors to the board and initiate a comprehensive business review.
As part of a cooperation agreement NRG entered into with Elliott on Nov. 20, the Houston company also named four new independent directors:
- Marwan Fawaz, former executive adviser for Google and its parent company, Alphabet Inc. (Nasdaq: GOOGL), and former CEO of Nest and of Motorola Home;
- Kevin Howell, former COO of Dynegy Inc., a Houston-based energy company that Irving, Texas-based Vistra Corp. (NYSE: VST) acquired in 2018, and former regional president of NRG Texas;
- Alex Pourbaix, executive chair and prior president and CEO of Canada-based Cenovus Energy Inc. (NYSE: CVE); and
- Marcie Zlotnik, co-founder, COO and chair of Texas retail electricity provider StarTex Power.
Although this gives NRG's board 13 directors, the company expects that number to decrease to 11 in the second half of 2024. Howell and Pourbaix will join the board's CEO Search Committee, which will also include Cox and existing independent directors Lisa Donohue and Antonio Carrillo. Donohue is chair of the committee.
During NRG's Investor Day on June 22, the company said it was working to refresh its board of directors, among other efforts, following Elliott's first letter published on May 15. However, Elliott said in its June 27 letter that those efforts were not sufficient.
In the Nov. 20 announcement, NRG also said it will "conduct a comprehensive review of its operations and cost structure to identify additional opportunities to become more efficient and further enhance capital return to shareholders."
Elliott Partner John Pike and Portfolio Manager Bobby Xu described the changes NRG announced Nov. 20 as a key milestone for the company.
“We invested in NRG because we believed that a renewed focus on best-in-class operations and returns-driven capital allocation would strengthen NRG and enable it to deliver significant upside for shareholders," Pike and Xu said in a joint statement.
Coben noted that the new directors bring "complementary experience as proven operators in the energy industry and in leading growing innovative home technology companies with iconic brands."
One of the major issues Elliott criticized NRG for earlier this year was its acquisition of Provo, Utah-based Vivint Smart Home. Elliott called the recently closed $5.2 billion deal "the single worst deal in the power and utilities sector during the past decade" when measured by the one-week market reaction following its announcement in December.
“Today, NRG is in a position of strength,” Coben said in the Nov. 20 announcement. “The company is generating substantial cash flow, which is supporting a solid balance sheet, investments in our business and meaningful capital returns. The integration of Vivint is well underway, and as a differentiated company at the intersection of energy and smart home technology, NRG has clear upside value creation opportunities.
“The board is confident in NRG’s strategic direction as a consumer energy and services company, and we extend our appreciation to Mauricio for his contributions in helping to build NRG’s solid foundation as we prepare for the next generation of leadership.”
Evercore and Lazard acted as financial advisors to NRG Energy, and White & Case LLP and Cravath, Swaine & Moore LLP acted as legal advisors. BofA Securities, Inc. acted as financial advisor to the NRG Board of Directors, and Potter Anderson & Corroon LLP acted as legal advisor.
