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.
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”.
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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.