SSE could face pressure to break up its energy business as the activist hedge fund Elliott Advisors pushes for a spin-off of its renewable energy division after building a stake in the company.
The hedge fund has reportedly begun talks with senior SSE executives after investing in the company over the summer, and has joined industry analysts in calling for the company to separate or sell its renewables business.
Elliott has not publicly confirmed its position in SSE’s shares, which was first reported in the Betaville financial blog in August, and has declined to comment on media reports this week. SSE has also declined to comment.
The campaign would mark Elliott’s second UK-based target this year after the $48bn fund took aim at pharmaceutical giant GlaxoSmithKline earlier this year, calling for its boss Dame Emma Walmsley to reapply for her job.
SSE’s chief executive Alistair Phillips-Davies and chairman Sir John Manzoni completed a big overhaul of the company in early 2020 with the £500m sale of its energy supply business to Ovo Energy to focus on developing renewable energy and operating its regulated electricity networks.
SSE runs the power lines and cables which provide electricity to millions of homes across central southern England and the north of Scotland, alongside a growing renewable energy portfolio of wind farms and hydro power plants.
Phillips-Davies has claimed that investing in renewable energy, including a stake in the world’s biggest offshore wind farm at Dogger Bank in the North Sea, alongside power network upgrades to cope with a rise in electric heating and car charging is a coherent strategy for the UK’s “net zero carbon” future.
John Musk, an analyst at RBC Capital, said earlier this summer that investing in SSE was “an excellent way to play the energy transition via both renewables growth in the UK and a solid base of growing regulated [network] assets”.
But industry analysts claim that the company is undervalued in the market, despite the overhaul, and could reap big financial benefits from splitting the renewable and energy networks business.
Deepa Venkateswaran, an analyst at Bernstein, said in July that the company’s renewable energy portfolio was undervalued by the market and SSE could increase its market value more than 50% by disposing of its networks business.
SSE’s shares have climbed by 14% since speculation about Elliott’s interest in the company first emerged to 1659p a share on Tuesday.
