The board of Scottish power firm SSE is under attack from one of the most aggressive activist investors operating in today’s markets. And Elliott Advisors doesn’t just want strategic change; the hedge fund has called for a restructuring of the SSE board, a move underlining a claim that the current incumbents could do better.
Elliott’s argument with SSE is that the company is undervalued—and largely because it failed to spin its renewables business into separate listed companies for the FTSE 100.
The hedge fund believes a recent sale of stocks “lacked ambition” as did a recently published strategic plan—the Net Zero Acceleration Programme. Elliott was disappointed by SSE cutting its dividend, while the running of the company is also a problem for the hedge fund. In a letter to SSE chair Sir John Manzoni it accuses the company of running an “opaque” strategic review process that raises “serious questions abut the legitimacy of the review and the adequacy of SSE’s corporate governance under which it was conducted”.
Those words will likely sting at SSE’s headquarters in Perth. But Elliott isn’t finished. Not only does the letter ask for a strategic change, but also the addition of two new board members and the creation of a new board committee staffed by independent directors.
New board members are necessary, claims Elliott, because only four of the nine non-executives have energy sector experience, while there is a “notable lack of renewables expertise”.
A new strategic review committee, according to Elliott, “would be the best way to bring to bear the skills of a few independent directors with the most relevant expertise directly on the challenges and opportunities facing SSE.”
Push for growth
Elliott is used to picking on figurehead companies when it sees an opportunity to push for growth. In February last year Elliott, which manages around $48bn in assets, targeted Jack Dorsey, founder and chief executive of Twitter, with calls that he should move on.
This year Elliott argued GlaxoSmithKline, the healthcare giant, should appoint new board members and part company with chief executive Emma Walmsley. Dorsey recently moved on, though Walmsley remains in post after raising the full-year profits forecast in October.
The clash between Elliott and SSE has been rumbling on since at least early November, when SSE rejected the suggestion it needed to overhaul the boardroom. Elliott bought its stake in SSE in September.
Elliott’s manoeuvre against SSE comes at a time when many observers expect activism to ramp up, especially against companies that have emerged from the pandemic weaker.
Just this week Alvarez & Marsal, a consultancy firm, released figures suggesting activism would enter a “golden age” in 2022 with the number of companies targeted expected to rise by at least 10%.
Iuri Struta, an expert with Activist Insight, a publication covering the sector, says: “Those companies that emerged worse-off from the coronavirus pandemic than their peers are especially vulnerable, as activists tend to target industry underperformers.”
SSE’s response
SSE’s share price fell sharply after publication of half-year results on 17 November and the announcement of the company’s Net Zero Acceleration Programme.
In a response SSE did not address changes to the board and instead focused on Elliott’s call for separating the company. The company says its acceleration programme has prompted “supportive” and “constructive” discussion with “major shareholders”, while Moody’s, the ratings agency has upgraded SSE to “stable” on the strength of the plan.
Separation, SSE says, would “risk” growth options in clean energy and “jeopardise” the company’s ability to finance national infrastructure.
“Separation does not support the financing of our core growth businesses and would rule out adjacent growth options, as well as reducing the resilience of the business model—it is not the outcome to maximise value for shareholders or our other stakeholders,” says SSE chief executive Alistair Phillips-Davies.
This may not be the last we hear from Elliott Advisors over SSE. The next few days and weeks will tell. But activists look as if they are only just beginning to ramp up their activity and boards will be under pressure to stand their ground, change their thinking or change their personnel.