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Elliott breaks cover in SSE battle as it blasts management and revives calls for renewables spin-out

·3-min read

The activist investor stalking SSE today broke cover to blast the energy giant’s management and increase pressure on the company to spin-off its renewables business.

Elliott Advisors today published a letter sent to SSE’s chairman Sir John Manzoni calling for the company to spin-off or sell at least part of its renewables business, beef up its board and appoint a new strategy committee to draw up more ambitious plans for SSE’s future.

It marks the first public salvo from Elliott after months of behind-closed-doors talks between the US activist and SSE’s management. Elliott has built a significant stake in SSE and is now among the company’s top five shareholders. Elliott has been privately lobbying for SSE to split itself in two by spinning out its fast-growing renewables business and leaving the legacy network infrastructure business as the core.

Elliott has broken cover after SSE rejected its suggestions. SSE last month announced a new strategy aimed at making it the biggest constructor of offshore wind turbines in the world. It plans to invest £12.5 billion in renewable over the next five year, funded by the sale of a partial stake in its networks business and a cut to its dividend. The stock closed down 4% on the day of the announcement.

In its letter, Elliott said these plans “lacked ambition” and “disappointed” investors and analysts. The activist questioned “the adequacy of SSE’s corporate governance” and the “legitimacy” of the strategy review that led to SSE’s investment plan.

Nabeel Bhanji and Jeff Rosenbaum, senior portfolio managers at Elliott, said rivals like Eni and Iberdrola had already gone down the renewables spin-out route, leaving SSE suffering from “a significant multiple discount to its Renewables peers”. They also blasted the company’s “deep, persistent share-price underperformance.”

Elliott wants SSE to look again at the possibility of spinning out or selling up to 49% of its renewables business, a move that it believes would accelerate its growth thanks to cheaper capital. The activist also wants SSE to appoint more two new independent directors to address “the notable lack of renewables expertise on the Board” and to set up a strategy committee at board level to “reassure investors that SSE’s strategy will not be limited to the underwhelming initiatives announced on 17 November.”

“We believe that—with the right steps—there is a clear path for the Company to unlock £5 billion of untapped value and establish its leadership position as the U.K.’s renewables champion,” Bhanji and Rosenbaum wrote in the letter.

SSE CEO Alistair Phillips-Davies said: “Separation risks valuable growth options across the clean energy value chain, would jeopardise our ability to finance and deliver the major infrastructure the UK needs to create jobs and achieve net zero, and would lose shared skills that benefit the group.

“Separation does not support the financing of our core growth businesses and would rule out adjacent growth options, as well as reducing the resilience of the business model – it is not the right outcome to maximise value for shareholders or our other stakeholders.”

Phillips-Davies said the accelerated investment plan announced last month was “the optimal pathway to accelerate clean growth, lead the energy transition and create value for all stakeholders.” He said the company has had “constructive and supportive discussions” since the plans were first announced.

Shares in SSE dipped 3p, or 0.2%, to 1627p. Despite volatility, the stock is broadly flat across the year.

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