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December 7, 2021

SSE faces activist investor calls to split from renewables business

The UK energy company has rejected calls from one of its activist investors to split its renewable generation arm from its core business.

By Matt Farmer

Elliott Management, a US-based activist hedge fund, has privately encouraged SSE to split its energy businesses for weeks. However, a new letter marks the first public insight into the debate that followed SSE’s announcement of a $16.8bn plan to become the world’s leading offshore wind farm constructor.

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Wind Power Market seeing increased risk and disruption

The wind power market has grown at a CAGR of 14% between 2010 and 2021 to reach 830 GW by end of 2021. This has largely been possible due to favourable government policies that have provided incentives to the sector. This has led to an increase in the share of wind in the capacity mix, going from a miniscule 4% in 2010 to 10% in 2021. This is further set to rise to 15% by 2030. However, the recent commodity price increase has hit the sector hard, increasing risks for wind turbine manufacturers and project developers, and the Russia-Ukraine crisis has caused further price increase and supply chain disruption. In light of this, GlobalData has identified which countries are expected to add the majority of wind power capacity out to 2030. Get ahead and download this whitepaper for more details on the current state of the Wind Power Market.
by GlobalData
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Portfolio managers at the hedge fund wrote to SSE chairman John Manzoni to propose the split. Estimating SSE’s renewable assets to be worth £21 per share, the investment firm believes that SSE could generate an additional £5bn from a potential split; 30% of the company’s value.

The letter also urged the company to create a new, detailed plan to “address investor concern around SSE’s corporate governance, its ability to fund its growth in the long term, and its persistent undervaluation”.

As part of this, the hedge fund also urged SSE to appoint two independent directors to its board. It called SSE’s recently announced investment plan “lacklustre”, and the review process that formulated it “opaque”. It also said that the company’s separation from its networks business should have “more ambition”.

The hedge fund’s letter blamed the perceived “persistent undervaluation” on current chief executive Alistair Phillips-Davies. In response, Phillips-Davies called SSE’s plans came from a “rigorous” review and presented “the optimal pathway to accelerate clean growth, lead the energy transition, and create value for all shareholders”.

A spokesperson for Elliott Management said that the company was a “top five” shareholder in SSE. Previously, the hedge fund has encouraged a change in the management of pharmaceutical company GlaxoSmithKline and forced a deal around Twitter’s governance.

The news follows German energy leader RWE facing similar calls from another activist investor earlier this week. In a letter to RWE management dated 3 December, investment fund Enkraft encouraged the company to separate from its brown coal division. The company recently published a $56.6bn investment plan, but Enkraft claimed that RWE leaders “fail to recognise the great strategic and economic importance of this issue for all RWE stakeholders”.

Both of these moves mimic follow Engine Number One’s high-profile defeat of ExxonMobil’s board earlier this year. At the company’s annual general meeting, the activist investor won a vote to install two new board members, despite the sitting board’s advice to vote against the proposal.

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Free Report
img

Wind Power Market seeing increased risk and disruption

The wind power market has grown at a CAGR of 14% between 2010 and 2021 to reach 830 GW by end of 2021. This has largely been possible due to favourable government policies that have provided incentives to the sector. This has led to an increase in the share of wind in the capacity mix, going from a miniscule 4% in 2010 to 10% in 2021. This is further set to rise to 15% by 2030. However, the recent commodity price increase has hit the sector hard, increasing risks for wind turbine manufacturers and project developers, and the Russia-Ukraine crisis has caused further price increase and supply chain disruption. In light of this, GlobalData has identified which countries are expected to add the majority of wind power capacity out to 2030. Get ahead and download this whitepaper for more details on the current state of the Wind Power Market.
by GlobalData
Enter your details here to receive your free Report.

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