Activist investor Elliott attacks SSE over renewable energy plans

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Hedge fund Elliott Management has called for sweeping changes to Scottish energy group SSE, including the appointment of new independent directors, in a sharp attack on SSE’s energy transition strategy.

In a 10-page letter to SSE Chairman Sir John Manzoni, published on Tuesday, the Fund for American Activists criticized the performance of long-time CEO Alistair Phillips Davies and called a set of reforms to improve financing for the renewable energy business a “missed opportunity”.

The letter is Elliott’s first public comment on SSE’s strategy since it took a stake in the business this year and began lobbying management in particular to split its power grid and renewable energy divisions into two separate listed companies.

The SSE campaign marks the second-largest FTSE 100 targeted by the hedge fund this year, after a bid for change at British healthcare group GlaxoSmithKline.

Energy companies across the sector are struggling over how to finance the investments in renewable infrastructure needed to reform the global energy system and reduce carbon emissions.

SSE, which was one of the sponsors of the COP26 climate summit in November in Glasgow, has the largest portfolio of renewable electricity in the UK. It also owns the main power grid in northern Scotland, local grids in areas of England such as Oxfordshire and other assets including gas-fired power stations.

“SSE has one of the most attractive portfolios of renewables and grid assets” in the UK, Elliott said in the letter, but its shares were trading at a discount of approximately 30 per cent to the value of these companies. SSE’s current market value is $17 billion.

“The market’s failure to attribute fair value to SSE and its portfolio is directly due to the company’s ineffective conglomerate structure and a confusing stock story,” the company said. “Renewable energy and grids are a fundamentally different business, backed by disparate shareholder records, with individual financing needs, growth profiles and strategic priorities.”

Elliott’s stake in SSE was first reported in September. In the letter, the hedge fund said it was one of the top five shareholders and that it had shared its views with SSE management over a period of “several months”.

However, in November SSE chose to decline a spinoff in favor of boosting investment in renewables by selling a 25 percent stake in its power grid business and cutting dividends.

SSE told investors at the time that an offer or sale of the renewable energy business would increase costs and make it more difficult to finance large projects such as the 3.6 gigawatt wind farm it is building off the northeastern coast of England.

Elliott described the arguments as “routine” and the suggestions as lacking “ambition”. She added that there was a “history of underperformance” during Phillips-Davies’ eight-year tenure.

SSE’s share price closed 4 percent lower on November 17 after the announcement.

Elliott also criticized the review process behind the new strategy’s decisions, which she called “vague” and “deeply flawed.”

“This raises questions about SSE corporate governance and about the board’s ability to oversee the renewables strategy despite the lack of renewable energy expertise among its non-executive directors,” she said.

In response, Elliott is calling for the appointment of two new independent directors with renewable energy expertise and the creation of a committee of independent board members to lead another review of the SSE strategy.

She said the review should include consideration of the sale of a larger stake in the electricity grid business and the partial listing and potential sale of a stake in the renewables division.

“The SSE must act urgently to restore investor confidence, lest the decline in shareholder value become permanent,” Elliott said.

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