Billionaire hedge fund manager Paul Singer and fellow activist investor Charles John Wilder have their work cut out for them with their latest gamble: overhauling a major player in the utility space, a sector that has humbled some of the world's savviest investors in recent years.
The two are behind a plan to transform NRG Energy, the nation's largest independent power producer, from a sprawling giant with significant clean energy holdings to a smaller and simpler generator and seller of electricity.
If they succeed, they will at least create a more valuable company for shareholders. But they also stand to reshape the competitive landscape through major acquisitions and score a win in an industry that has confounded the likes of Goldman Sachs and Warren Buffett.
Analysts say the surge in NRG's share price last week reflects investors' confidence in Wilder, 59, who won a board seat in February after partnering with Singer, 72, to push for change. Now the head of energy investment firm Bluescape Energy Partners, Wilder made his name by turning around Texas power company TXU before selling it in the largest ever leveraged buyout in 2007.
Singer's Elliott Management owns a nearly 6 percent stake in NRG, while Bluescape owns about 2.8 percent, according to FactSet.
NRG Energy 10-year stock performance
At NRG, Wilder and CEO Mauricio Gutierrez aim to shrink the business after shareholders rebelled against an aggressive expansion into renewable power and sustainable energy spearheaded by former chief executive David Crane over the last decade.
The company will try to generate about $1 billion in cost savings, while seeking to sell off all or part of its renewable energy business, as well as a portion of its conventional energy portfolio. That will reduce NRG's debt load, largely tied to renewable projects, and generate up to $6.3 billion to invest in higher-yielding businesses or fund shareholder payouts, the company said.
NRG has not disclosed which power plants will remain in its portfolio once the transformation plan is complete, but analysts say even its best coal, natural gas and nuclear facilities, many located in Texas, face a challenging environment.