Octopus enters race for collapsed supplier Bulb with eleventh hour bid
Octopus Energy (Octopus) has made a late offer for Bulb Energy (Bulb), establishing a three-way tussle for the UK’s seventh biggest energy supplier.
City PM understands from industry sources that Octopus is one of multiple parties to have now placed a bid for the supplier, alongside Masdar Energy (Masdar) and domestic rival Centrica – which owns British Gas.
Earlier this year, City PM revealed that more than two firms remained interested in Bulb, despite reports from other media outlets that the process had been whittled down to just a couple of bidders.
The bidding process is now being overseen by US financial advisory group Lazard, which had also been pursuing financial backers for Bulb in the weeks prior to its collapse into de-facto nationalisation last November.
A deadline of June 30 has been established for the process, and City PM understands an official decision could be announced as soon as next month.
Octopus has previously hinted at its interest in Bulb’s 1.7m customers, as the firm’s chief executive Greg Jackson did not rule out a bid for the energy firm when interviewed by City PM ahead of the recent price cap update in March.
At the time, he argued it was “critically important we get good value for taxpayers” with any deal for Bulb, and that there had to be a “transparent process.”
Jackson told City A.M.: “We need to make sure Bulb’s customers are well looked after. It’s fair to say there’s been a wide range of different experiences with customers that have been through these supply failures.”
“Not every company has done a great job of looking after customers during this transition. But in other places customers have actually benefitted from transitioning from a poorly-run company to a well-run one.”
He suggested Octopus had “probably done just about the best job of looking after customers” during the energy crisis.
Bulb’s woes highlight industry in crisis
Bulb sank into special administration last year amid industry carnage that has seen 29 suppliers exit the market since September, directly affecting over four million customers.
Like many firms, its fall from grace was caused by insufficient hedging, alongside the lethal combination of a rigid consumer price cap and spiralling wholesale costs – which hit £4 per therm at the time of Bulb’s collapse.
For context, the cap at the time was set at £1,277 per year, which meant suppliers could only charge customers 70p per therm for their energy.
Over the past nine months, market watchdog Ofgem has ferried over two million customers from fallen firms to surviving suppliers through its ‘last resort’ process, at a cost of £1.8bn – which has been imposed on spiralling household energy bills.
Octopus was one of the more active parties during this process, snapping up Avro Energy’s 580,000 customers after it exited the market – and now serves over three million energy users.
However, Bulb was considered too big for the supplier of last resort process by the Department for Business, Energy and Industrial Strategy (BEIS).
Instead, it became the first energy company to enter special administration.
Since then, it has been placed on life support, surviving over the winter and into spring through transfusions of public money – estimated at £3bn.
This is the biggest state bailout of a company since RBS in 2008, at the height of the financial crisis.
Bulb’s administrative process has faced criticism for costing taxpayers more than expected, with its chief executive, Hayden Wood still being paid his £250,000 per year salary through public funds.
The firm has also been unable to hedge properly, meaning it is having to buy energy supplies for customers at higher prices compared to other firms.
Since Bulb’s collapse, the consumer price cap has spiked to nearly £2,000 per year, with Ofgem boss Jonathan Brearley warning Parliament last month it could rise as high as £2,800 per year in October following Russia’s invasion of Ukraine.
The outbreak of conflict in Ukraine has exacerbated festering fears of supply shortages – which were already elevated amid rebounding post-pandemic demand and capacity issues across major producers.
This has resulted in the Chancellor, Rishi Sunak, unveiling a £15bn support package, which could offer the most vulnerable households up to £1,200 off their energy bills.
The spending plans are partly being funded by a windfall tax, consisting of a further 25 per cent levy on North Sea oil and gas operators – meaning their profits now face an eye-watering 65 per cent tariff.
It is expected to raise £5bn this year, following record underlying earnings at energy giants such as BP, Shell, and Equinor.
In recent months, Ofgem has announced a raft of measures to ensure the sector is more resilient to future market shocks, such as financial stress tests, fit and proper person rules, and compensation for suppliers that lose customers through switching – known as the market stabilisation charge.
The new charge has been particularly controversial, and was the subject of a foul-mouthed rant from Martin Lewis, founder of MoneySavingExpert.com.
He accused Ofgem of selling “consumers down the river” by reducing the chance for cheaper energy bills for consumers.
Ofgem is also pushing for a quarterly price cap, which it argues will ensure households will enjoy lower energy bills at a greater speed when market conditions return to normality.
However, this could also lead to a further price hike this January, in the coldest month of the year when the energy use is at its peak – with Cornwall Insight expecting high energy prices to be baked into the market for the next two years.
Creditor funds could hamper sales process
Octopus’ entry into the race is likely to be a source of encouragement for both of Bulb’s administrators – Interpath Advisory and Teneo – amid industry concerns the supplier would fail to attract sufficient bids and end up in a state of extended nationalisation like some rail franchise and banks have in recent years.
Nevertheless, Bulb’s sale is still loaded with challenges which initially put off buyers from taking over the firm last winter before it entered administration.
This includes money owed to outstanding creditors such as the Sequoia Economic Infrastructure Income Fund (Sequoia), which is looking to claw back around £55m.
When the administrators were being designated last November, Sequoia swooped in at the last moment to force Simple Energy – the parent company of doomed supplier Bulb – to switch administrators from AlixPartners to Interpath Advisory.
It is unclear how many other creditors Bulb owes money to and whether they will look to intervene in the sales process.
What is clear though is that Bulb remains plagued with financial difficulties.
Since its inception in 2013, the supplier never turned a profit and at the time of its collapse it owed over £250m to customers who had paid for their electricity and gas in advance, and had recorded a loss of £59m.
Wood and his co-founder Amit Gudka also scooped up more than £8m from a share sale in 2018 – with investors taking £35m out of the business.
Meanwhile, Octopus might not even be the final bidder to enter the market.
The Financial Times has revealed that Ovo Energy (Ovo) is still weighing up an offer – after media reports suggested it had withdrawn its interest last winter.
Octopus, Teneo, Interpath Advisory and Ovo all refused to comment when approached by City PM
Centrica, Masdar, Lazard, and BEIS have also been contacted for comment.
The story was first reported in The Financial Times.