Ovo takeover of Bulb would be ‘brave move’

A takeover of government-administered energy supplier Bulb by Ovo would be a “brave move”, a former big six boss has told Utility Week.

On Thursday (20 October) Sky News reported that Ovo had written to Bulb’s special administrator Teneo renewing its interest in the supplier, with sources stating that it is prepared to acquire the company without any additional taxpayer funding, unlike rival Octopus’ bid which is being discussed with ministers.

Responding to the news, former Npower boss Paul Massara said: “I’m a bit surprised that they don’t need some help just given the ability to hedge forward means that your balance sheet, your mark to market and your hedges tend to increase dramatically given the high volatility.

“So if they take over the customers of Bulb and then have to hedge it out, then somewhere they’ve got to put a lot more capital up in the business to hedge it…It’s a brave move, I think, let’s put it that way.”

Massara added that acquiring Bulb’s customer base on top of Ovo’s existing 4.5 million domestic customers would create a “concentration issue” for the latter.

“It’s up to 25% if not more of the market and at that stage you start questioning whether that’s a necessarily good position to get back into,” he added.

Other industry sources have also questioned if Ovo has the financial firepower to acquire Bulb without government support.

In its most recent financial results, to the end of 2021 but signed off in June of this year, Ovo warned that as a result of “key uncertainties” it expected to breach certain financial covenants in 2022.

Last month the company issued a statement insisting it was right to flag the concerns at the time of signing off the accounts but that “since the end of our financial year, we have seen significant steps by the government and the regulator to create more certainty”.

One source told Utility Week: “It raises the question as to how healthy the underlying finances are once you take out the Energy Price Guarantee. There’s not much certainty about so why do they suddenly feel they’re in a strong enough financial position to do this?”

Until Ovo’s 11th-hour intervention, Octopus had been the sole bidder, with the expectation that the company would seek a £1 billion loan from government, which would have been included in the fiscal statement.

The founders of Octopus Energy set up a new subsidiary earlier this month, originally called Octopus Tentacle, but since re-named to Octopus Energy Retail 2022.

Both Ovo and Teneo declined to comment on the matter when approached by Utility Week.