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Exclusive: Hedge fund prepares proxy fight to oust board at embattled PG&E

Exclusive: Hedge fund prepares proxy fight to oust board at embattled PG&E
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ELIJAH NOUVELAGE(Reuters)
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By Svea Herbst-Bayliss and Mike Spector

NEW YORK (Reuters) - PG&E Corp  shareholder Blue Mountain Capital Management LLC is preparing to launch a proxy fight to oust the embattled California utility owner's board, arguing that the company is harming investors with its plan to seek bankruptcy protection in the wake of catastrophic wildfires.

The hedge fund, which owns about 11 million PG&E shares, is trying to rally support from other shareholders to replace all 10 board members at this year's annual meeting expected in May, according to a letter reviewed by Reuters.

"We expect to announce the New Slate no later than February 21, 2019," the New York-based firm, which invests $19 billion (15 billion pounds), wrote in the letter to shareholders which is expected to be delivered on Thursday.

"In order to rebuild essential relationships and restore trust, the Company needs an entirely new board," the letter said. This is the second time the hedge fund has run a proxy contest and it did not identify its intended nominees in the letter.

PG&E is reeling from potentially crushing liabilities associated with deadly wildfires in 2017 and 2018 that ripped through California communities, killing dozens of people and destroying homes.

The company forecasts its liabilities from the blazes could exceed $30 billion. The utility owner is facing scrutiny over the role of its equipment in the fires. 

With a new board and fresh oversight, the hedge fund forecast that the company's share price, which closed at $7.99 on Wednesday, could trade at $50 in the future.

"When sound governance is restored, and structural issues addressed, the Company will resolve its financial issues," the hedge fund wrote.

Blue Mountain's move, while a potential distraction for PG&E during its expected restructuring, would need additional support from other shareholders, like hedge funds Baupost Group, D.E. Shaw and Hound Partners, among others, to succeed.

PG&E, the biggest U.S. power utility by customers, provides electricity and natural gas to 16 million customers in northern and central California.

"UNNECESSARY BANKRUPTCY"

Blue Mountain has publicly challenged PG&E Corp's plan to file for bankruptcy protection around Jan. 29, which the company revealed to employees earlier this month in part due to a California law requiring such notification.

The board's "intention to file a voluntary, costly, and unnecessary bankruptcy, ... in our view, violates their fiduciary duties to the Company and to you," the hedge fund said in its letter.

Board members failed to roll up their sleeves and are ready "to concede defeat and pass the buck to a bankruptcy judge," the hedge fund wrote.

PG&E said in a securities filing it could potentially raise more money and avoid seeking bankruptcy protection, but argued such a move would be complex, uncertain and expensive.

PG&E's chief executive recently resigned and Chairman Richard Kelly said the company is committed to "further change" and searching for a new leader with "extensive operational and safety expertise" while its general counsel helms operations on an interim basis.

The hedge fund and other shareholders could potentially be in line to sit on a so-called equity committee that a bankruptcy judge would be empowered to appoint as part of PG&E's court proceedings.

Such a committee would have the ability to litigate during PG&E's bankruptcy case and gain leverage to improve financial recoveries as the company develops a reorganization plan.

Most companies filing for bankruptcy protection have nearly worthless stocks that result in shareholders being wiped out while creditors seek to recover as much as possible from a financially-strapped firm.

PG&E, while facing a steep decline in its stock price, is still worth billions of dollars despite telegraphing its bankruptcy plans.

(Reporting by Svea Herbst-Bayliss and Mike Spector; editing by Darren Schuettler)

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