Flowgroup, owner of the domestic supplier Flow Energy, is facing a shareholder revolt with Ovo Energy said to be interested in acquiring the subsidiary.
Shareholders representing just under 17% in the company this morning announced that it intended to vote against the sale of Flow Energy to Co-Operative Energy, favouring instead an asset sale to Ovo.
On 10 April the company confirmed that it had entered into a conditional sale and purchase agreement to sell Flow Energy, its main subsidiary, to Co-operative Energy Limited for a headline purchase price of £9.25 million.
It said the board had concluded that the sale represented “the best realistic course of action available to the company” under current constraints. Chief among those were the fact that its growth had been stymied as a result of more significant regulatory fees coming into play if the supplier added any further customers.
Flow Energy is estimated to have around 230,000 domestic customers.
But in a statement this morning, Pal Global Small Cap Master Fund, Palm Active Energy and Provincial House Estates, which together own around 16.68% of the outstanding voting rights of the company.
Joshua Horowitz, portfolio manager at Palm Global Small Cap Master Fund, said that the company had recently been made aware that directors of Flowgroup had “successfully developed a contingency plan” to sell the Flow Energy assets to Ovo Energy should the proposed sale to Co-op Energy fall through.
Palm said it estimates the difference in value between the two proposed sales to be worth more than £10 million in Ovo’s favour.
“As contemplated, an asset sale to OVO provides a 100% recovery for FEL’s senior creditor, Shell Energy Europe Ltd. (“SEEL”), who will be paid in full, approximately £24m, upon a completion date of April 30, 2018. A sale to OVO also provides a superior return to the remaining creditors as a whole. Unfortunately, neither transaction is anticipated to result in any recovery to Preferred or Ordinary shareholders,” he added.
As a result, Palm now intends to “fully support” an asset sale to Ovo “as soon as practicable”, stating that Flowgroup’s directors have a fiduciary duty to protect senior secured creditors and then other secured creditors, something which a deal with Ovo energy would achieve.
“OVO Energy unambiguously represents a better home for Flow’s substantial customer base.
“Should Co-op Energy attempt to act against the clear wishes of the shareholders and interfere or collude with any third parties to undermine a potential transaction with OVO Energy, Palm will make every effort to recover any loss suffered by the creditors directly from Co-op Energy and the Midcounties Co-op Board,” the company said.