By Becky Yerak and Katherine Blunt
A hedge fund that recently raised its stake in PG&E Corp.'s stock is pushing to oust the California utility's board of directors and says the shares, now trading around $14, could be worth more than $50 with the right corporate governance.
BlueMountain Capital Management LLC, which owns about 11 million of PG&E's 519 million shares, on Thursday sent a letter to shareholders urging support for a proxy fight to replace the company's entire 10-member board during an annual shareholder meeting in May. The investor said it plans to nominate a new slate by Feb. 21.
"When sound governance is restored, and structural issues addressed, the company will resolve its financial issues," BlueMountain said in its Thursday letter to PG&E shareholders.
Last week BlueMountain urged the utility's board of directors to reconsider recently announced plans to file for bankruptcy soon to tackle liabilities from wildfire damages that PG&E estimates could run into the tens of billions of dollars.
Talk of a chapter 11 filing shook BlueMountain and other investors that bought up the stock before California's deadly Camp Fire, which killed 86 people. The utility's equipment is suspected of having triggered some wildfires.
PG&E shares, selling for $48.80 just before the Camp Fire broke out in November, closed Thursday at $13.95, up almost 75% after California's forestry and fire protection department, known as Cal Fire, said one deadly 2017 fire was caused by a private electrical system, not by PG&E's equipment.
"The news from Cal Fire that PG&E did not cause the devastating 2017 Tubbs fire is yet another example of why the company shouldn't be rushing to file for bankruptcy, which would be totally unnecessary and bad for all stakeholders," said a BlueMountain spokesperson.
"With proper corporate governance and appropriate resolution of liabilities in the ordinary course, we believe that PG&E common stock could be worth in excess of $50 per share," BlueMountain wrote.
The firm hasn't yet divulged the names of any individuals it plans to nominate to the board at the upcoming shareholder meeting.
The current board's plans to file "a voluntary, costly and unnecessary bankruptcy" violates its "fiduciary duties to the company and to you," BlueMountain said in its shareholder letter.
"Instead of rolling up their sleeves and getting to work, current board members are poised to concede defeat and pass the buck to a bankruptcy judge," BlueMountain said. "There is no imminent financial crisis -- there is a leadership crisis."
BlueMountain said a new board would have the ability to investigate the decisions that led to the company's "value-destroying bankruptcy announcement and take appropriate action."
"If a new board agreed with the overwhelming evidence that PG&E is solvent, it could exit bankruptcy on an expedited basis without impairing creditors," BlueMountain wrote.
PG&E has lost the public's trust and has severely damaged its relationship with regulators and elected officials, BlueMountain said.
Already, state investigators have tied the utility's equipment to 18 wildfires in 2017, and they are working to determine whether one of the company's high-voltage transmission lines started the Camp Fire.
Earlier this month PG&E, the parent of Pacific Gas & Electric Co., said the boards of directors of the corporation and the utility are in the process of searching for new directors and are currently interviewing several candidates.
PG&E said Thursday that its board is working with a search firm on its "board refreshment process."
PG&E also said earlier this month that Chief Executive Geisha Williams was stepping down and John Simon, the company's general counsel since 2017, would serve as interim CEO as the utility's board of directors conducts a search for a new chief.
Rothschild Vice Chairman Roger Kimmel has also resigned as a director.
PG&E has said that, following a comprehensive review that included help from outside experts, its board unanimously determined that a chapter 11 reorganization is the only viable option and the best way to maximize the value of the business for all interests, which include wildfire victims, customers, employees, creditors and shareholders.
BlueMountain, with offices in New York and London, has about $19 billion in assets under management.
It is unclear whether BlueMountain would have the support of other shareholders in electing new directors at PG&E. Other major hedge funds including Baupost Group LLC and D.E. Shaw continue to own PG&E shares. Baupost and D.E. Shaw declined to comment.
-- Peg Brickley contributed to this article.
Write to Becky Yerak at email@example.com and Katherine Blunt at Katherine.Blunt@wsj.com