National Fuel Gas Co.’s largest shareholder, high-profile investor Mario Gabelli, is seeking a shareholder vote on his proposal to spin off the Amherst energy company’s utility business from its pipeline and oil and natural gas drilling operations.
Gabelli, who indicated in April that he might make a formal proposal to spin off the utility business, said that splitting National Fuel into two separate businesses would help “enhance the underlying value of the company.”
By making the utility business a separate company, it “can participate in the consolidation activity occurring in the utility space,” Gabelli said in a filing with the Securities and Exchange Commission.
Making National Fuel’s pipeline and drilling businesses a separate company will create a business that “will more easily be embraced by investors, as well as provide greater flexibility should the company pursue alternative capital structures,” Gabelli said in the filing.
Gabelli’s proposal, assuming it clears all the legal hurdles to be included in National Fuel’s proxy statement, would be put up for a vote at the company’s next annual shareholder’s meeting, which likely will be held in February or March of next year.
And because Gabelli’s investment company, Gamco Investors, owns 9.16 percent of National Fuel’s stock, and he is the company’s biggest shareholder, his push to split off the utility business carries significant weight.
Gabelli told The Buffalo News this spring that National Fuel’s three main businesses, while all deeply rooted in the natural gas industry, each have unique characteristics that appeal to different types of investors.
Its solidly profitable but slow-growing utility business appeals to conservative investors attracted by the company’s 2 percent dividend yield.
Its gas pipeline and storage business is slightly riskier than the utility unit but has a growing appetite for cash as National Fuel expands its pipeline network to move gas from the Marcellus Shale region in Pennsylvania to gas-hungry markets elsewhere.
And its fast-growing oil and gas drilling business is the riskiest of all but offers the greatest growth potential because of the company’s vast land holdings in the Marcellus Shale region. As the company’s shale gas drilling operations have skyrocketed over the past six years, that part of the business has taken on a more dominant role in National Fuel’s overall scope.
Gabelli has argued that combining a slow-growth utility, with a more risky pipeline business and an even riskier oil and gas drilling business creates a mismatch for investors. By splitting the company in two, risk-averse investors could focus on National Fuel’s utility business, which likely would pay a dividend, while growth-oriented investors willing to take on more risk could concentrate on its pipeline and oil and gas drilling segment.
National Fuel executives have avoided commenting directly on Gabelli’s push to split the company since he first raised the topic in late April. But Ronald Tanski, National Fuel’s chief executive officer, has said he believes the company’s current make-up allows each of its main business units to benefit from their ties to the others.
“One of the main drivers of those efficiencies is our integrated model,” Tanski said during a conference call in May. “I firmly believe our integrated model has added value for both shareholders and ratepayers.”
National Fuel’s stock dipped 4 cents, to $73.55 on Monday. The shares have risen 3 percent this year.
Neither Gabelli nor National Fuel executives could be reached for comment on Monday.