Mark Kleinman: Ovo’s quest for cash needs fresh spark
Ovo’s quest for cash needs fresh spark
Talk about losing its spark. For Stephen Fitzpatrick, the 2020 acquisition of SSE’s retail energy supply arm was a defining moment – a daring swoop by Ovo, the upstart utility he had founded, for a principal member of the sector oligopoly.
It’s been far from plain sailing since: regulatory fines, a challenged balance sheet and management upheaval have conspired to raise questions over Ovo’s future. Such questions were reinforced in the company’s own accounts late last month, when it warned of a “material uncertainty” over its future because of ongoing talks aimed at meeting Ofgem’s capital adequacy requirements.
Sources say that while a formal deadline for Ovo to adhere to the new regime has never been imposed on the company, suppliers which are working towards an agreed recapitalisation plan are not technically in breach of the watchdog’s rules.
These include Octopus Energy, now the largest player in the market, and possibly another unnamed supplier. Even Iberdrola-owned Scottish Power appears fatigued by the industry’s deteriorating economics, having explored a deal to combine with Ovo earlier this year.
There’s little doubt that this regulatory climate is now deterring investors from signing cheques – earlier this week, I reported on Sky News that Verdane, a Norwegian private equity firm, had walked away from talks to buy a big stake in Ovo for that reason. I can now reveal that buyout firm Permira reached the same verdict after weeks of studying the terms of a potential deal.
People close to Ovo say it remains in dialogue with a number of parties, both strategic and financial, about a possible investment. It is also working with bankers at Arma Partners on the sale of a stake in Kaluza, its software arm, which could provide a modest amount of additional financial headroom.
In a statement which could have been dictated by Rachel Reeves herself, an Ofgem spokesperson told me: “Regulation needs to be backing growth, not blocking it. We are focused on creating a consistent and predictable regulatory environment that will attract investment and further increase the stability of the energy market.”
The watchdog’s memories of a period in which dozens of suppliers collapsed, with their customers transferred into the care of larger rivals, are fresh. The question now is whether the pendulum has swung too far in the other direction.
Diageo pay decisions suggest an excess of consumption
Have they been consuming too much of their own product? That might be a pertinent question to ask of the board of Diageo, the FTSE-100 group which makes Guinness and Johnnie Walker whisky, along with Smirnoff vodka and Don Julio tequila.
Glass Lewis, the proxy adviser, is urging investors to vote against Diageo’s pay report at next month’s annual general meeting on the basis that insufficient performance conditions were attached to nearly £8.5m of stock awards to Nik Jhangiani, the finance chief recruited last year who is now running the show as interim CEO.
Diageo’s retort is that the shares were handed over simply to cover stock forfeited by Jhangiani when he left Coca-Cola Europacific Partners, the bottling giant. There’s some merit in that argument – such awards are hardly unconventional.
It’s hard to argue, though, that Diageo deserves investors’ backing this year for its boardroom pay practices – and not only in relation to Jhangiani. Debra Crew, who stepped down in July after a torrid tenure which lasted barely two years, received a pay package in her final year worth $4.8m, $1m more than in the previous year.
That included a near-doubling of her annual cash bonus, which in the context of Diageo’s struggles appears to be a questionable decision on the part of its remuneration committee.
True, ISS, Glass Lewis’s peer, does not appear to be as perturbed about the drinks giant’s board’s judgement, offering only a qualified concern about the fact that its executive directors’ annual bonuses paid out over 40 per cent of the potential maximum level despite its weak performance.
Nevertheless, directors might need a stiff drink to get through what could be an explosive AGM, which, appropriately enough, takes place on 5 November.
Curve’s future not unfolding in a straight line
Nothing is ever linear at Curve. The British fintech, which has raised roughly £250m from investors during its decade-long existence, has – as CityAM readers will be aware – agreed to sell itself to Lloyds Banking Group for about half that sum.
Shareholders feel understandably aggrieved by the outcome, a sense which has been exacerbated by the proposed distribution of the sale proceeds. Shachar Bialick, the chief executive, for example, is in line for a multimillion pound payout, while some early and other substantial investors face seeing their investments wiped out.
Cue the angry shareholders’ efforts to remove directors including Bialick and Curve’s City grandee chairman, Lord Fink. Their first attempt came at a rapidly aborted meeting at the start of this month, which sources say was adjourned on procedural grounds.
Then, last Friday, the rebel investors saw their resolutions defeated, with Fink and Bialick remaining in place (presumably to expedite the transaction with Lloyds). As for next steps, it’s unclear whether restive investors have any remaining tools to prevent the sale proceeding. Lloyds had originally intended to announce the deal weeks ago, so the absence of any confirmation suggests it may be waiting to see how the situation unfolds. I can guarantee it won’t be in a straight line.