Octopus Energy has asked the Government for a £1bn funding package to seal a takeover of Bulb, its ailing rival.
Sky News has learned that the privately held Octopus is close to an agreement with ministers to take over its smaller competitor, which collapsed late last year.
City sources said this weekend that Octopus would pay between £100m and £200m to take over Bulb’s 1.6million-strong customer base.
It would also include a “significant” profit-sharing arrangement to give the government a return on earnings from Bulb customers for several years.
The £1bn government funding package is being targeted by Octopus because Bulb does not hedge its wholesale gas purchases and it faces rising prices during an energy crisis that has worsened since the Russian invasion of Ukraine.
A source close to the talks said the $1bn
Insiders said this weekend that an agreement between Octopus and the government to acquire Bulb could be reached within weeks, although they warned the complexity of the deal could still prevent that.
Bulb’s collapse last November was the most significant of dozens of supplier defaults, with Ofgem, the industry regulator, heavily criticized for its approach to licensing new entrants.
The company’s administrator, Teneo Restructuring, and investment bank Lazard have orchestrated the search for a buyer.
Octopus Energy made the only formal offer for Bulb ahead of a deadline last month, meaning ministers have few options to remove the financial drain on taxpayers that the company has become.
If Octopus strikes a deal, the likely total risk of government collapse would be more than £3bn, including the £1bn dowry.
The independent Office for Budget Responsibility said in March the bailout would require more than £2bn to cover operating losses.
However, the multi-year profit-sharing arrangement would allow the government to recoup a small portion of the cost to taxpayers.
One person involved in the discussions called it “a fair deal for all parties.”
The repayment of the £1bn hedging cost package over time, combined with the upfront sale price and profit-sharing, could mean Bulb’s failure will ultimately cost taxpayers less than £2bn, according to a source.
A rescue by Octopus Energy would also secure Bulb’s customers under the stewardship of a company seen as an industry leader.
Some sector executives believe Bulb is losing up to £5m a day because it failed to hedge gas forward purchases.
The fall of Octopus Energy to its smaller peers would expand its customer base to 5 million UK households and cement its status as one of the major energy suppliers operating in the UK.
Founded by Greg Jackson, its chief executive, the company has raised more than £1billion from a range of blue chip investors.
This week it announced it had completed a $550 million fundraising, with $325 million set aside to support the growth of its UK and international energy technology platform, Kraken.
“Octopus will continue to do everything we can to help customers through the energy crisis while investing in better solutions to ensure something like this never happens again,” Mr Jackson said.
Centrica, the owner of British Gas, and Masdar, an Abu Dhabi-based company, are also said to have considered bids for Bulb, but no bids materialized from either.
The scramble to sell Bulb comes as annual household energy bills are expected to hit £4,000 next year – a figure unthinkable just a few months ago.
A recent prediction from Cornwall Insight suggested the industry price cap would rise to £3,500 in October.
Michael Lewis, chief executive of E.ON, which supplies more than 4 million UK homes, told Sky News economics correspondent Paul Kelso that up to 40% of homes could fall into energy poverty this winter.
Treasury Department approval is also required to sign a deal.
Octopus Energy is being advised by KPMG on the Bulb acquisition talks.
Octopus Energy and Bulb declined to comment on Saturday, while the Department for Business, Energy and Industrial Strategy was asked for comment.
Octopus Energy asks taxpayers for £1bn in support to seal deal for struggling lightbulb | business news
Source link Octopus Energy asks taxpayers for £1bn in support to seal deal for struggling lightbulb | business news