SSE rejects activist investor Elliott’s call to break up

Energy group SSE has rejected calls from hedge fund Elliott Management for a break-up, saying it would instead sell minority stakes in its electricity networks businesses to boost investment in “net zero” infrastructure such as renewables.

Elliott has been arguing for a separation or sale of SSE's renewables business after taking a stake in the FTSE 100 group, which is a significant supplier to the Irish domestic market through its SSE Airtricity subsidiary.

SSE said on Wednesday it had “carefully considered” a separation of the renewables division, but had calculated that a break-up would result in “quantifiable dis-synergies” of £95 million (€113 million) a year as well as £200 million in one-off costs in areas such as IT and financing.

It said separation of the renewables arm would also make it more difficult to fund large projects such as its 520 megawatt Arklow Bank Wind Park 2 project in Ireland.

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SSE says it expects to contribute a significant amount of the capacity needed to meeting Ireland’s 5GW offshore wind target by 2030. It said a foreshore licence has been secured for site investigations for the 800MW Braymore Wind Park project off the north-east coast and an application has been submitted for the 800MW Celtic Sea Array off the south-east coast.

Earlier stage

“Halving the scale of the company is no way to go about being able to tackle the biggest, most difficult projects this world needs . . . us to do in a way that ultimately enhances value,” said SSE’s longstanding chief executive Alistair Phillips-Davies. A separate renewables arm would have to sell stakes in projects at a much earlier stage and therefore would not achieve such attractive returns, he added.

“Scale is very important,” Mr Phillips-Davies said, adding: “If you’re half the size, you’ll only get half the funding.”

SSE is instead increasing the company’s investment in net zero infrastructure, including renewables and electricity networks, to £12.5 billion by 2026, up from a previous plan to spend £7.5 billion by 2025.

The strategy would be supported by the disposal of 25 per cent stakes in its electricity networks businesses, SSE said.

But it will also be partly funded by a substantial cut in the dividend to 60p from 2023. SSE has said that for the current financial year it expected to recommend a dividend of 81p plus RPI inflation.

Shares were down 4.4 per cent in afternoon trading in London, having been 7.1 per cent off earlier in the day – its biggest slide since March 2020.

Some analysts have suggested that SSE might need to revisit a break-up strategy if it succeeds in expanding internationally in areas such as offshore wind.

‘Missed opportunity’

Bernstein analyst Deepa Venkateswaran, who this year published research on the benefits of a break-up, called SSE’s update a “missed opportunity to unlock further value”.

Mr Phillips-Davies said he hoped “all our shareholders will support us” in delivering its latest plans, which were published alongside half-year results showing a 116 per cent increase in half-year pre-tax profit to £1.69 billion.

SSE’s statutory results were helped by gains on derivatives contracts, but its adjusted earnings per share, up 44 per cent to 10.5p, were also higher than a previously guided range of 7.5p-10p.

SSE says that it is supplying about 680,000 customers in ireland, down from 700,000 a year earlier. – Copyright The Financial Times Limited 2021