Shares of Hydro One Ltd. fell Thursday after the Toronto-based electricity utility announced a deal with the government of new Ontario premier Doug Ford that will replace the company’s board of directors and retired its chief executive.
Hydro One’s stock price closed down 3.2 per cent at $20.17, having fallen as low as $18.57 in earlier trading.
Hydro One said Wednesday evening that, following an approach of its own to the province, it had entered into an agreement that would prompt each of its current directors to resign and be replaced with a new board. According to a release, that 10-person board would be nominated 40 per cent by the province, which remains the company’s largest shareholder, and 60 per cent by its other largest shareholders.
The aim is to have the new directors in place by August 15, the release said. The directors would also appoint a new chief executive officer, who will sit as an eleventh member of the new board.
According to a letter published on Wednesday, Hydro One and the province also agreed to a deal that included the retirement of Mayo Schmidt, the president and CEO of the company, the same day.
Among the other terms of his departure, Schmidt is to receive his base salary and his short-term bonus for 2018 prorated to Wednesday, in addition to a one-time lump sum cash payment of $400,000 that will be received “in lieu of all post-retirement benefits and allowances as provided in his contract or otherwise.”
The news at Hydro One is just the latest political maneuvering that has gone on around the utility, which boasts more than $25 billion in assets.
Hydro One has essentially been a political hot potato since the Liberal government that preceded Ford decided to privatize it back in 2015. Approximately 53 per cent of the utility, Ontario’s largest distributor and transmitter of electricity, has been sold to other investors. The money earned from the share sales had been earmarked by the now-deposed Liberals for infrastructure projects and paying off debt.
The province still owns more than 282 million shares of Hydro One, the combined value of which had dropped by around $211.8 million as 11:00 a.m.
But Ford took special issue with Schmidt’s compensation and made firing Schmidt — dubbed “The Six-Million-Dollar Man” by Ford — a key campaign issue ahead of the June election that brought Ford and the Progressive Conservatives to power in Ontario.
Schmidt earned nearly $6.2 million in total compensation last year, according to Hydro One’s management information circular.
“After years of rising electricity bills, this is a step towards our main goal—bringing down electricity rates for all Ontarians,” said provincial energy minister Greg Rickford in a statement.
Moreover, the majority now held in the Ontario legislature by Ford and the Progressive Conservatives could have continued to make life quite awkward for the current management of Hydro One had they not taken action.
“We believe that the agreement we have reached with the Province of Ontario, which provides for an orderly transition of the board of directors and CEO succession, is in the best interests of Hydro One and its various stakeholders and provides stability and clarity to Hydro One’s governance and management structure going forward,” said David Denison, chair of Hydro One, in a press release.
Hydro One’s chief financial officer, Paul Dobson, has been appointed as the acting CEO.
The company, however, is also in the midst of an attempted $6.7-billion takeover of northwestern U.S. energy company, Avista Corp. The deal has been racking up regulatory approvals, and the company had previously wanted sign-offs from U.S. state and federal regulators by August 2018.
All of the sound and fury around Hydro One has created some cautious stances among analysts. CIBC World Markets’ Robert Catellier said they were reducing their price target on the stock to $20.50 a share, down from $24.
“While the transition will occur through a more orderly process than we had feared, it indicates the government is willing to meddle,” Catellier wrote in a note. “Just as worrisome is the possibility that the government meddles with the company’s rates in some form, potentially impacting earnings and upside from incentive rate making. This also does not bode well for the Avista acquisition, which does not yet have all required regulatory approvals.”
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