Ecotricity has made a cash offer for Good Energy, valuing the company at £45.3 million excluding the shares it already owns, or £59.6 million when included.
The cash offer for the entire issued and to be issued ordinary share capital of Good Energy not already owned by Ecotricity comes in at a price of 340p per Good Energy share, and follows three indicative offers that were rejected by Good Energy’s board.
The offer also represents a premium of around 10.6% over the closing price of 307.5p per Good Energy share on 9 July 2021, and a premium of around 26.6% over the volume weighted average closing price of 268.5p per Good Energy share over the three-month period to 9 July.
The move would consolidate the two oldest green energy suppliers in Britain, Ecotricity said, with this enabling both companies to better compete in the highly competitive supply market.
Ecotricity - which has owned shares in Good Energy since 2016, with its stake currently being around 25.1% - also gave the reasoning that it has a development function for new green energy generation while Good Energy does not, as well as Ecotricity operating a ‘bills into mills’ concept which links customers’ bills to the building of new green energy sources. The company said it believes that the addition of Good Energy customers to this concept would enable the building of further sources of green energy.
Good Energy’s financial performance was also cited by Ecotricity, stating it had deteriorated over the past three years, with EBITDA declining by a CAGR of -4.1%, gross margin declining from 28.6% to 22.6% and revenue growing at a CAGR of 5.7% although when adjusted for inflation over the three years revenue growth comes in at 3.2%.
In its full year 2020 results, Good Energy recorded an underlying operating profit of £4.5 million, with this a drop on 2019's £6.4 million. In its H1 results for that year, the company said higher network costs and the need to sell excess contracted power back due to the fall in demand from COVID-19 had resulted in drops in profits.
“Our view is that Good Energy does not have an effective plan for this competitive market and is in decline as a result,” Ecotricity said, adding that while the share price has increased in recent months, it doesn't believe that this rise is underpinned by any fundamental changes in the business.
Ecotricity intends to de-list Good Energy from AIM and ACSE, a move which it said would result in savings of time and cost. It would also undertake a strategic review of organisational structure, key functions, processes and systems of both companies, which it intends to operate as separate brands within the market.
It would retain the current headquarters and headquarter functions, operations and place of business of both suppliers.
The consideration payable under the offer is to be funded out of Ecotricity’s existing cash resources, including an unsecured interest free loan made by founder Dale Vince to the company on 7 June 2021.
In response to today's announcement, Good Energy reiterated its "unequivocal rejection" of the offer - with the price per share the same as the third indicative offer made - and its belief that it significantly undervalues the group and its future prospects.
Will Whitehorn, chair of Good Energy, said: "We firmly reject this highly opportunistic and hostile offer by a direct competitor to the company. The Board believes the offer is not in the best interests of our shareholders as a whole, nor is it in the best interests of our employees and customers. We have a clear growth strategy, a strong leadership team and a proven track record of delivering on our objectives.
"We are disappointed to see Ecotricity pressing ahead with its offer regardless of the Board's unequivocal and unanimous rejection."
Good Energy's board is now strongly advising that its shareholders should take no action at this time, with the board to write to shareholders with its formal response to the offer in due course.
It follows a previous clash between the two in 2017, when Vince launched a bid to appoint himself to the board of Good Energy as a non-executive director, with Good Energy stating this presented a “significant conflict of interest”.