Break-ups don’t always deliver financial nirvana. Take Prudential’s. When it unveiled its demerger from M&G in March 2018, the insurer was a £50 billion group. Since then, it’s spun off US wing Jackson Financial too. The trio’s combined market value today? £44 billion.
All the cost and hassle for that. So, maybe SSE boss Alistair Phillips-Davies is right to buck the trend that’s got the likes of GE, Johnson & Johnson and Toshiba smashing up their conglomerates. And, more aptly, to ignore the break-up calls from Elliott: a self-styled “top five” SSE investor, even if around half of its sub-5 per cent stake is via contracts for difference.
It’s not just the SSE boss, either, who might question Elliott’s claim that splitting the networks wing from a standalone renewables unit would add £5 billion of value and lift the shares to £21 — versus £16.29 today. If it was that obvious, wouldn’t the hedge fund’s ten-page letter to SSE chairman Sir John Manzoni have produced something better than a 0.09 per cent share price fall? Still that doesn’t mean the break-up issue will go away — because Elliott is canvassing other SSE investors and, so far, Phillips-Davies has failed to make his case.
Last month’s “strategic update” was a stab at that. But it was basically a paean for the status quo — and a hodge podge to boot. SSE’s regulated networks, wind farms and gas-fired power stations were staying put, apart from the sale of 25 per cent of networks. But the surprise was a 30 per cent dividend cut to fund an extra £1 billion a year of capex at the “UK’s clean energy champion”: a move that unnerved income investors while prompting some analysts, notably Bernstein’s, to lambast the update as a “missed opportunity on separation”.
Phillips-Davies’s case against break-up? That it’d cost £200 million and create “dis-synergies” of £95 million a year. But he refused to show his workings, while admitting that his “independent” analysis was the work of brokers Morgan Stanley and Credit Suisse: a duo incentivised to keep the group together.
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It was an invitation for Elliott to have another pop. The result? It’s cranked up the pressure, claiming that, in his eight-year tenure, SSE has “underperformed the European Utilities index by 77 per cent”. It’s also calling for two new non-execs to bring renewables nous to the board.
In Elliott’s view, Phillips-Davies’s dis-synergies talk is “simply not credible”. Those at GE, whose market value is 4.5 times’ SSE’s £17.4 billion, are only $150 million to$200 million. SSE says its figure spans shared corporate costs, procurement gains and the benefits of scale: the sort to bring a better credit rating and lower debt costs.
But Elliott reckons the SSE figure is about five times too high. Neither does SSE have a similar anti-break-up case to Shell, where fossil fuels are funding its green transition. Yes, SSE’s regulated network wing pays a dividend to the group. But Ofgem regulation must limit the cash it can redirect to renewables.
Another thing: SSE now says it wasn’t just its brokers but other banks and consultants that helped it with its update. But it won’t even say who they are. Yes, as Denmark’s Orsted has proved, when the wind doesn’t blow shares in standalone renewables groups get hit — down 18 per cent in a year. So, Elliott’s break-up maths could prove a bit trite. Yet, SSE still hasn’t made a proper case against. It needs to. The hedge fund is not the sort to give up.
Trade talking
Happy days. For 48 years, Britain offloaded the pain of trade agreements to a bunch of EU officials. And then along came Brexit to create heaps of extra work for us. As an EU member, the UK was party to 39 trade pacts with 70-plus nations outside the bloc, covering 15.7 per cent of our trade.
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So, it’s not a bad effort from the Department for International Trade (DIT) that it had recut 33 of those deals, accounting for £185 billion of trading, ahead of the EU transition deadline. And that it now only has three deals outstanding, making up 0.1 per cent of 2020’s UK trade. In some cases, too, such as Japan — responsible for £24.2 billion of UK imports and exports — the new deal goes further than the EU one. Even so, as a National Audit Office report argues today, “the speed and intensity of negotiations” has spread government resources too thinly, while cutting “the time available for analysis to support decision making” or for parliamentary scrutiny of deals.
To boot, there’s a risk of the talks bypassing the people that really count: businesses and consumers. Business lobby groups told the NAO that, despite signing confidentiality agreements, the info the “DIT considers it can share with them does not always enable detailed discussions”.
True, Boris seems to think that talks on Peppa Pig World are the limit of business’s attention span. But the government is yet to strike the big deal: the one with America spanning 16.8 per cent of UK trade. Sealing that without serious input from business would be nuts.
Booth’s principles
No wonder Booths is known as the “Waitrose of the North”. Just like the southern version, it’s thought nothing of hanging on to the government’s corona business rates relief, totting up to £452,000 in its case. And that’s despite emerging “from the pandemic as a stronger business, focused on principle and purpose”, as chairman Edwin Booth put it. How does it demonstrate those principles?
Well, off the back of a 6.1 per cent rise in sales to £284 million and reversing last time’s losses to post a £1.85 million pre-tax profit, it’s paid the family owners a £126,000 dividend: a payout effectively funded by the taxpayer. Go to Booths for a really sour taste.
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alistair.osborne@thetimes.co.uk
