What happened
Energy transmission company UGI (UGI -1.36%) is seeking buyers for its liquefied petroleum gas (LGP) business and other assets. Investors are intrigued by the possibility, sending UGI shares up as much as 10% on Thursday.
So what
UGI is a distributor and marketer of energy products in the U.S. and Europe, offering natural gas and electricity transmission and distribution, midstream services, and the distribution of propane and other gases. On Wednesday after markets closed, the company announced its board has initiated a process to evaluate potential strategic alternatives to try to "unlock and maximize shareholder value."
The board is working with bankers and lawyers to consider a range of options, with a focus on the LGP business. UGI said it hopes to reduce earnings volatility and strengthen its balance sheet via the review, though it offered no guarantees a corporate action would occur.
UGI shares are down more than 35% for the year even after the rally, in part due to concerns about its leverage. The company has more than $7 billion in debt on its balance sheet compared to just $260 million in cash.
Now what
Mizuho Securities USA analyst Gabriel Moreen was upbeat on the announcement, noting that UGI currently trades at a discount to the firm's sum-of-the-parts valuation. A sale of the LGP business would allow the company to pay down some of its debt and address some concerns about its operations, the analyst said.
The announcement is a good first step, but investors need to remember that the nature of UGI's announcement is broad and it is too soon to say what, if anything, will come from the discussions. If UGI can get its balance sheet in order it might get on more investor radar screens, but for now it is important to give the process time to play out.
