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It wasn’t necessarily the way to bet, but two big names of the FTSE 100 index have shown how to respond effectively when you have Elliott Management, the world’s most feared activist hedge fund, on your tail. The answer is to smile sweetly in public, do the engagement bit, and then deploy counter-arguments that are heavy on financial detail.
At GlaxoSmithKline, it was a case of defending management by making credible long-term sales and profit commitments, a pitch that seems to have satisfied other shareholders, barring an upset between now and next year’s demerger of the consumer division.
At the Perth-based energy group SSE, which on Wednesday said it won’t be taking Elliott’s advice to split itself in two, the debate has hinged on the merits of housing renewables assets and electricity transmission and distribution networks under the same roof. SSE’s point is simple: it’s cheaper to stay together.
The chief executive, Alistair Phillips-Davies, did not quantify how much more a standalone renewables business operation would have to pay to borrow, but the idea that the pace of rollout would be slowed is plausible. Adventures like the vast Dogger Bank windfarm are not small, and SSE also wants its slice of the carbon capture and hydrogen markets. Sometimes size matters. For good measure, Phillips-Davies threw in £95m of “quantifiable dis-synergies” from loss of shared services with the electricity-focused side, plus £200m of separation costs.
The numbers will not end the debate, but the supposed appeal of a breakup seemed to rely on the premise that the stock market will always award sky-high valuations to pure renewables businesses. That idea has looked wobbly after year of low wind speeds in the North Sea and a one-third fall in the share price of Ørsted, the Danish pinup. SSE’s returns for the last half-year offered a parallel advertisement for balance: higher profits from networks more than offset a decline from renewables last year.
SSE isn’t proposing business as usual, obviously. It will sell minority stakes in its two big networks business and hit shareholders with a dividend cut in two years’ time, from 81p currently to 60p, to fund its £12.5bn “net zero acceleration programme”. It’s a major shake-up, just not the one Elliott wanted.
The hedge fund is free to lobby for something different, but should probably note how SSE these days promotes itself as “the UK’s clean energy champion”. The flag-waving is a reminder of the political backing for SSE and renewables in Westminster and Edinburgh. If the financial arithmetic is also coherent – and SSE’s is – such companies are hard to bully.
Visa share price drop points to deal with Amazon before Christmas
It’s always fun when monopolists collide, and the showdown between Amazon and Visa promises excellent sport.
The former says it will stop accepting payments from UK-issued Visa cards from mid-January on the grounds that fees are too high. And Amazon accompanied its threat by arguing that technology ought to be reducing the costs of transactions, which is a reasonable view. Visa and its handful of competitors have had an easy ride on the back of the surge in e-commerce during lockdown.
Can Amazon drop Visa credit cards in the UK so simply in practice? Perhaps it can. Many users of Visa credit cards will also have other cards, so won’t be overly inconvenienced. And, put to the test, one suspects consumers would prove more loyal to Amazon than to Visa. The shopping website would seem to have might on its side.
The 5% fall in Visa’s share price in early New York trading looks a strong hint to its board to come to the negotiating table. That, presumably, is what Amazon intended. The prediction here is a deal before Christmas.
A reason to split that CMC has barely registered
Peter Cruddas owns 62% of CMC Markets, so he’ll get his way if he wants to separate the fledgling stockbroking operation from the original high-octane spread-betting business. He also sounds set on the idea. For the second time this week, he said a demerger would unlock “significant value” for all shareholders.
Maybe he’ll be proved right, but it’s not as if CMC is a complex conglomerate. It has two financial services units, neither of which is hard to understand. The alternative way to achieve the desired rerating would to continue to build the new operation, including launching a UK investment platform next year, and let the results speak for themselves.
There is a better argument for a split: association with the whizzy world of spread betting might deter more plodding platform punters. Oddly, though, CMC barely makes that point.
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