The holdings company announced the completion of its spinoff of Knife River Corp. in June, and it’s pursuing a separation with MDU Construction Services Group, another subsidiary.

The company plans to hold on to its other subsidiaries, President and CEO Dave Goodin said. These include Montana-Dakota Utilities along with three other utilities companies and the WBI Energy natural gas transmission company.

The moves will mostly have a financial impact on the companies involved, possibly enabling them to pursue greater investment from the stock market and banks. There has not been much of an impact on employment so far. Charitable giving within the communities the company serves may look different, but it is not going away.

MDU Resources is nearly a century old and has been headquartered in Bismarck since the 1960s. 

Montana-Dakota Utilities acquired Knife River in 1945 prior to realigning under MDU Resources. The company began trading on the New York Stock Exchange in 1948. It adopted the name MDU Resources in 1985. In the early 1990s Knife River transitioned away from its coal operations toward producing aggregate construction materials and contracting their use. Aggregates are materials such as stone, sand and gravel used to construct infrastructure.

MDU Construction Services Group began in 1997 with the goal of expanding MDU Resources’ operations through its experience in constructing transmission and energy infrastructure. It has expanded its scope since. Today, around two-thirds of the firm’s operations are in electrical and mechanical services for a number of entities from data centers to sporting venues, according to Goodin. 

He said a smaller MDU Resources should be seen as a sign of growth for the company as well as its former and soon-to-be-former subsidiaries.

“You’re like the 30-year-old in the basement and you’re now ready to be out on your own,” Goodin said of the Knife River spinoff.

Both subsidiaries have seen significant expansions since the 1990s. Knife River has operations in 14 states. MDU Construction Services Group is authorized to work in over 40 states.

“We’re one of the very few headquartered public companies here in MDU Resources. We just created another one: Knife River,” Goodin said.

Corporate separations are on the rise, according to a recent analysis by the investment bank Goldman Sachs and Ernst & Young, an accounting firm. The practice has increased in both size and scale due to investors seeking more certainty in less-predictable financial market conditions as well as companies encountering a rising cost of capital from higher interest rates.

Goodin said the primary driver behind the separations is that investors today are more attracted to “pure-play” companies which focus primarily on specific goods or services.

“There would be times where we felt maybe the market didn’t appreciate the underlying businesses and the performances of those businesses,” he said. 

University of North Dakota economics professor David Flynn said a more focused business structure could help encourage investment. 

“When you don’t have too many types of business activity under one corporate umbrella, at times it is easier for the market to have a better understanding of what you do and how effective you are at doing it,” he said.

Utilities such as the ones that fall under the MDU Resources corporate umbrella are often limited in their growth due to regulation. This causes them to have a slower but steadier revenue stream as growth is less dependent on market conditions.

Construction on the other hand has fewer regulatory limits and has seen rising demand as the U.S. seeks to upgrade much of its infrastructure and produce more goods domestically.

“It looks like a market that does have a significant potential for growth,” Flynn said.

The largest impacts of these separations will be financial, according to Goodin. A more diversified structure has allowed MDU Resources to take cash flows from the more labor-intensive parts of its businesses such as construction services, for funding of the more capital-intensive elements of the business such as utilities and natural gas, he said. Under a pure-play structure in the future, the company will seek to raise more capital from outside investors from the stock market and banks, which Goodin expects to be easier since utilities tend to receive better credit ratings.

With a more diversified business, “There’s more financial flexibility in a sense but at the same time we need to have the market understand all those moving parts,” Goodin said.

The separations should not have much of an impact on electric supply, as Knife River and MDU Construction Services Group have generally not been involved in MDU Resources’ electric and natural gas transmission operations, according to Goodin.

Flynn said that corporate separations should not hinder business operations if planned well.

Knife River CEO Brian Gray recounted similar benefits to the Tribune.

“It enhances our strategic focus and accountability,” he said. “We are able to pursue our own growth initiatives and reinvest where we are getting our best returns.”

MDU Resources had 16,575 employees prior to the Knife River spinoff and had 10,675 as of June 30. Today just over 6,000 are employed by Knife River.

Gray said Knife River plans to keep its corporate headquarters in Bismarck.

Around 9,000 employees are currently part of MDU Construction Services Group, according to Goodin.

He said MDU Resources was still considering what form the separation with Construction Services Group would take, but mentioned a sale, a spinoff, a merger or some sort of combination as possibilities.

MDU Resources employs 766 people within North Dakota; 488 work for Montana-Dakota Utilities, 175 for MDU Resources, 88 for WBI Energy and 15 for the Construction Services Group. 

Flynn said layoffs can follow separations, but they are more likely to occur when one part of a company merges with another party, due to redundancies that occur in operations. He said employment is less likely to fall with a spinoff unless there is early market disapproval of the move.

Goodin said the changes have created more opportunities for employees so far.

“Really employment’s maintained, if not increased slightly,” he said.

The MDU Resources Foundation has been around since 1983, offering over $1.09 million in scholarships, as well as over $42.3 million in grants generally to nonprofits. In 2022 the foundation provided around $2.4 million in grants.

The foundation engages in philanthropic efforts in a number of the communities it operates in, but its presence is notable in the Bismarck-Mandan area. It is funded through shareholder dollars that come from the profitability of the businesses. 

MDU Resources separately provides sponsorships as part of marketing and advertising through its corporate funds to other community staples such as The Bismarck Tribune’s Teen of the Week series and the Bismarck Marathon. The company donated millions toward a renovation of the Community Bowl athletic complex about a decade ago, and its name now adorns the facility.

Goodin said MDU plans to continue its philanthropic efforts, but a smaller company will ultimately mean that there could be fewer funds to draw from. Goodin said he expects Knife River will start its own philanthropic foundation once it is more settled in its transition to being a standalone company.

“I know that’s their intention, clearly that’s a funding source as part of our Resources Foundation that will probably affect our future funding to some extent,” he said.

Gray said Knife River is establishing a charitable foundation.

Goodin said he cannot speak to what Construction Services Group would do once it is a separate entity, as MDU Resources has not yet made a decision on the type of separation it will engage in.

“We’d like to still be involved in the community to the extent we’re able to,” he said.

MDU Resources has also added a new member to its board of directors: James Gemmel.

Gemmel is a partner at Corvex, a New York hedge fund know for its activist investing. Activist investing is a practice of buying large shares of a company with the purpose of influencing company policy, often seeking to create more value in stock prices, according to financial advisors. 

Corvex bought just under 5% of MDU Resources shares on Aug. 8, 2022, four days after MDU Resources announced its intentions to separate from Knife River, which Corvex publicly said was “a positive first step.”

Representatives for Corvex did not respond to Tribune requests for comment. The company has said little publicly about its aims. 

Corvex’s stake makes the hedge fund MDU’s fourth-largest investor.

In January, Corvex and MDU Resources signed a cooperation agreement to put Gemmel on the board of directors, which was done in May. His representation for Corvex makes the fund the largest investor on MDU Resources’ board. In the agreement on file with the Securities and Exchange Commission, Gemmel will eventually resign from his position on the board under a number of conditions which include when Corvex holds less than 8.1 million shares in MDU Resources, after the separations of both Knife River and Construction Services Group are completed, at the 2024 annual meeting unless he is renominated to the board, and if there is a breach of confidentiality or the cooperation agreement.

Goodin said Corvex’s advocacy on the board of directors is similar to others. He said the hedge fund brings an added financial perspective.

Activist investors often push for separations, according to Flynn. Their primary focus on stock growth over business operations is something he said a company should consider when an activist investor advocates for changes.

“Activist investors often have a very short-run view in mind,” Flynn said.

Corvex CEO Keith Meister once worked closely with Carl Icahn, who popularized the strategy of activist investing. The practice can generate benefits for both the company and shareholders, but disagreements over how a company should run sometimes lend their way to controversies, according to financial advisers.

In 2016 Meister attempted to overhaul the board of the Oklahoma-based natural gas pipeline firm Williams Companies after a merger fell through. Corvex eventually dropped the fight, according to reporting by the New York Times.

A less-contentious scenario played out recently with Exelon, a Chicago-based utility company. After Corvex took a large stake in Exelon, Meister pushed for a separation of the utility company and its power generation company, which ultimately was completed in 2022. The utilities firm is trading at a similar spot to where it was right after the spinoff, but the stock price of the power generation company, Constellation Energy, has grown by over 130%.

Goodin said MDU Resources’ relationship with Corvex has been constructive. Company spokeswoman Laura Lueder said Gemmel “adds to the diversity of experience and expertise already represented on our board as we implement our strategic initiatives.”

Flynn said an agreement between MDU Resources and Corvex was an indication that the two firms have a solid relationship.

“I think that’s a sign that things are working at least as expected,” he said.