Low Asset

Elliott Publishes Letter on SSE Calling for Immediate Action to Enhance Governance and

[ad_1]

LONDON–()–Elliott Advisors (UK) Limited, which advises funds (together “Elliott”), in its capacity as a top five investor in SSE plc (“SSE” or the “Company”) today sent a letter to SSE’s Chairman, outlining its conviction in the Company’s potential. The letter, sent in the wake of the Company’s disappointing announcement on 17 November and the resulting decline in SSE’s stock price, called on SSE to act expeditiously to restore investor confidence, lest the impairment in shareholder value become permanent.

Elliott believes that SSE’s high-quality portfolio of Networks and Renewables assets is worth £21 per share, and that the Company could have unlocked £5 billion of value through a listing of its Renewables business. In Elliott’s view, pursuing such a path could have simultaneously resolved SSE’s long-standing funding challenges and established the Company’s position as the U.K.’s renewables champion.

Unfortunately, according to the letter, SSE’s announcement on 17 November failed to provide any convincing explanation for why the Company was not pursuing a listing of Renewables. While SSE announced an initial sale of a minority stake in Networks, both the quantum and the timing of that transaction lacked ambition. Cutting the dividend disappointed many investors, particularly those who are income oriented and invest in SSE for the dividend stream it has historically provided. And the opaque review process raised serious questions about the legitimacy of the review and the adequacy of SSE’s corporate governance under which it was conducted.

Given the Company’s failure to put forth a comprehensive vision for how it can remedy its underperformance, Elliott challenges SSE to provide a detailed and credible plan to address investor concerns around SSE’s corporate governance, its ability to fund its growth in the long term, and its persistent undervaluation.

Among the steps the letter calls on SSE to pursue immediately are to 1) explore additional strategic initiatives, including a more ambitious disposal of Networks and a partial listing or partial disposal of Renewables; 2) add two new independent directors with renewables experience to the Board; and 3) create a strategic review committee composed of independent Board members.

Elliott concluded its letter by reiterating its willingness to work constructively with SSE on the needed changes, for the benefit of all with a stake in SSE’s future.

Full text is set out below:

7 December 2021

Sir John Manzoni KCB

Chairman

SSE

Inveralmond House

200 Dunkeld Road

Perth PH1 3AQ

cc. Members of the Board

Dear Sir John:

We are writing to you on behalf of funds advised by Elliott Advisors (UK) Limited (“Elliott” or “we”), which together represent one of the top five investors in SSE plc (“SSE” or the “Company”).

During our dialogue these past several months, we have shared with you our view that SSE owns one of the most attractive portfolios of Renewables and Networks assets. Yet SSE shareholders today receive only a fraction of the value of SSE’s businesses, which we believe are worth £21 per share (representing a ~30% upside to the current share price, or a £5 billion increase to the current market capitalisation). We discussed with you our view that SSE should list the entirety of its Renewables business, creating two standalone FTSE 100 U.K. companies, each better positioned to deliver on its respective distinct mission. And we demonstrated to you that a separation would resolve the long-term funding challenges that have hindered SSE’s growth historically, reversing years of share-price underperformance and allowing SSE to accelerate the green-energy investments required for it to become the U.K.’s renewables champion. A number of your competitors including Acciona, Eni and Iberdrola have already capitalised on this opportunity by advancing or examining plans to list their own renewables businesses.

The strategic initiatives announced on 17 November represent a first step in the evolution of SSE’s structure towards an eventual separation. It appears that our constructive dialogue contributed to your decision to materially increase the CapEx plan and to sell a stake in the Networks business. However, your announcement lacked ambition and disappointed your shareholders as well as many analysts and media commentators who were expecting more, as evidenced most clearly by the 4% drop in SSE’s share price on the day—amounting to close to £1 billion of market capitalisation destruction. Not only did SSE decide not to announce a bolder move towards a separation, it also added to the frustration of its investors by cutting the dividend without adequately addressing the Company’s long-term funding needs. One Barclays report summed it up well: “We see SSE trying to please everyone…as being a risk of pleasing no one.”

As the Company has failed to put forth a comprehensive vision for how it can remedy its persistent undervaluation, reverse its historical share-price underperformance and adequately fund Renewables growth beyond 2026 (a critical priority for accelerating the U.K.’s transition to Net Zero), we are making our views on SSE public today in the hope of fostering a broad and constructive debate on the right path forward for the Company and its stakeholders.

Our letter today is organised as follows:

  • SSE Today: Despite SSE’s attractive renewable power generation and electricity transmission and distribution assets, the Company trades at a significant multiple discount to its Renewables peers and also suffers from deep, persistent share-price underperformance. These issues are directly attributable to the Company’s inefficient conglomerate structure, and they would be best addressed by separating the assets through a listing of the Renewables business.
  • SSE’s Missed Opportunity: SSE’s announcement on 17 November failed to provide any convincing explanation for why the Company is not pursuing a listing of Renewables. While you announced an initial sale of a minority stake in Networks, both the quantum and the timing of that transaction lacked ambition. Cutting the dividend disappointed many investors, particularly those who are income oriented and invest in SSE for the dividend stream it has historically provided. Finally, the opaque review process raised serious questions about the legitimacy of the review and the adequacy of SSE’s corporate governance under which it was conducted.
  • The Path Forward From Here: In the wake of the market’s verdict on the Company’s announced strategy, the right next step for SSE is to restore shareholder confidence by (1) pursuing additional initiatives for value creation (including a more ambitious disposal of Networks and a partial listing or partial disposal of Renewables); (2) enhancing corporate governance by adding renewables expertise to the Board; and (3) creating a Strategic Review Committee at the Board level tasked with overseeing the Company’s new strategy.

Our hope is that in bringing these issues and recommendations into the public sphere, we can succeed in achieving a set of outcomes that we believe all SSE stakeholders will support: A stronger, better-performing SSE that is well positioned to deliver superior long-term returns for shareholders and to make significant contributions to the U.K.’s Net Zero commitment.

SSE Today

SSE currently operates a portfolio of highly attractive electricity transmission and distribution assets with close to £8 billion of Regulated Asset Value, as well as renewable power generation assets ranging from hydro to onshore wind and offshore wind. In recent years, SSE has been a key player in the U.K.’s transition to alternative sources of energy. With 8GW of existing and pipeline offshore wind capacity in the U.K., currently the largest offshore wind market globally, SSE’s Renewables…

[ad_2]

Source link