Activist Elliott Pushes for SSE Board Changes, New Strategy

(Bloomberg) --

Activist investor Elliott Investment Management is calling on SSE Plc to add two directors with renewable energy experience to its board and to begin a strategic review of its business following the U.K. utility’s recent decision not to split off its green energy unit into a separate entity. 

In a letter to SSE Chairman John Manzoni on Tuesday, the U.S. hedge fund said spinning off the renewables division would create 5 billion pounds ($6.6 billion) of value for shareholders. Elliott, which said it is one of the top-five investors in SSE, argued the company had failed to provide a convincing explanation for why it decided not to list the unit. It urged SSE to submit a “detailed and credible plan” to address its concerns.

In its decision last month not to split up the company, SSE said that such a move would lead to 95 million pounds a year of lost value. The utility also announced plans to sell part of its networks business and unveiled a 30% dividend cut from 2024, which disappointed investors, according to Elliott.

“Your announcement lacked ambition,” Jeff Rosenbaum and Nabeel Bhanji, portfolio managers at Elliott, said in the letter. “We demonstrated to you that a separation would resolve the long-term funding challenges that have hindered SSE’s growth historically, reversing years of share-price underperformance and allowing SSE to accelerate the green-energy investments.”

Elliott urged the utility to explore additional paths to create value for shareholders, including disposing of more of its networks business and a partial listing of its renewables business. It also called for a new strategic review committee at the board level to come up with a better plan. 

‘Constructive’ Discussions

In response, the Perth, Scotland-based utility said it had been holding “constructive and supportive” discussions with investors since its strategy announcement. 

“Separation risks valuable growth options across the clean-energy value chain,” the company said in a statement on Tuesday. “It is not the right outcome to maximize value for shareholders.”

It is unclear what the path forward would be if the parties can’t reach some common ground. Elliott could nominate directors and launch a proxy fight for board representation. As a major shareholder, the hedge fund could also increase its stake to 5% and call an extraordinary general meeting under the company’s bylaws to accelerate that process. Last year’s annual general meeting was held in July.

Elliott has a history of aggressively pushing for changes at the companies in which it invests, including AT&T Inc., Samsung Electronics Co. Ltd., BHP Group Plc. 

SSE shares were little changed by 4 p.m. in London. They have risen almost 3% since the company’s strategy update on Nov. 17. 

Wind Giant

How best to capitalize on the shift to net-zero emissions is a key question for utilities. SSE is the U.K.’s biggest developer of offshore wind and will benefit from Britain’s 40-gigawatt target for the technology by 2030. 

“SSE’s regulated assets have significant growth potential; the renewables pipeline is amongst one of the highest in proportion to current company value,” analysts at Barclays Plc said. “If Elliott are to continue to push for a company split, it will either need to bring management onside -- difficult in our view -- or be done without management blessing.”

Elliott pointed to competitors Acciona SA, Eni SpA and Iberdrola SA, which have already split off renewables units or are thinking about doing so. It said SSE’s businesses are worth 21 pounds per share, 29% more than the current stock price, or a total of 5 billion pounds more than its market capitalization.

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