SSE Has Made No Decision to Split Despite Elliott’s Pressure

SSE Has Made No Decision to Break Up Despite Elliott’s Pressure

SSE Plc said that no decision has been made to split the company despite pressure from activist investor Elliott Investment Management to spin off its renewables business into a separately listed company. 

“There has been no decision to break up the SSE Group,” the company said in a statement. “SSE’s strategic focus is on renewables and regulated electricity networks.”

Elliott has accumulated a stake in SSE and is now one of its top five shareholders, according to people familiar with the matter. The precise size of its holdings could not be learned. 

The U.S.-based hedge fund, which is run by billionaire Paul Singer, is urging the company to spin off its renewables business from its network assets in order to improve value for shareholders, the people said, asking not to be identified because the matter is private. 

The businesses already operate separately within SSE’s corporate structure. Elliott believes the renewables business could be distributed tax efficiently to shareholder through a special distribution, creating two separately listed companies based in Scotland. 

A representative for Elliott declined to comment. 

Elliott believes SSE is undervalued because the two businesses operating under the same umbrella isn’t attractive to high-growth investors who would be interested in a pure-play renewables business, the people said. The network business, meanwhile, is more attractive to yieldco investors who are looking for long-term, stable returns.

The firm believes separating the businesses would allow for the renewables business to trade at a higher multiple, raise capital cheaper and expand across the U.K. and internationally at a quicker pace, the people said. 

Elliott has told company leadership it believes the the combined businesses could be valued at 20 pounds per share once separated, or about a 25 percent premium to where SSE’s shares trade currently, the people said. 

The company is expected to next update the market on its strategy at its half-year results in November, SSE said. 

The move by Elliott comes as the U.K. energy market in crisis mode as surging power and natural gas prices threaten supplies and push some smaller utilities to the brink of bankruptcy. SSE’s Chief Executive Officer, Alistair Phillip-Davies has been involved in emergency talks with the business minister Kwasi Kwarteng over the weekend to discuss how to help the customers of companies in trouble. SSE sold its customer business to Ovo Energy Ltd in January. 

The statement by SSE “will do little to prevent Elliott from campaigning for a potential split of the businesses,” John Musk, analyst at RBC Europe Ltd said in a note.

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