Ovo Energy launches eleventh-hour approach for collapsed rival Bulb

Ovo Energy has launched a last-minute effort to buy failed rival Bulb Energy almost a year into a nationalisation that has cost the taxpayer at least £4bn.

Bulb was Britain’s seventh-largest household energy supplier when it collapsed last November as the result of soaring energy prices, inadequate capitalisation and its failure to buy gas in advance. Its bailout is expected to be the most expensive since the rescue of RBS during the 2008 financial crisis.

The company, which has 1.4mn customers, has been temporarily nationalised and is waiting for a long-running sales process to complete, months after it closed in July.

Octopus Energy had been the only company left in the running for Bulb after British Gas owner Centrica and Middle East energy group Masdar pulled out.

But according to Bulb’s administrators Teneo, Ovo on Thursday submitted a letter of intent to Lazards, which is handling the sales process. The approach was first reported by Sky News.

No terms of the proposed Ovo deal have been released. A supplier with the combined customers of Bulb and Ovo — Britain’s third-biggest energy supplier — would have almost a fifth of the UK market, rivalling British Gas, the largest company in the sector.

Ovo first made an approach for Bulb soon after it collapsed last November but did not make a formal offer during the sales process this summer. When it released accounts for 2021 last month, Ovo revealed that until recent government interventions it had been under financial pressure and in danger of breaching bank covenants.

It is unclear whether the government could accept a bid from Ovo since the sales process is already closed. The Department for Business, Energy and Industrial Strategy declined to comment.

In talks over its proposed deal, Octopus has asked the government to lock in Bulb’s fuel purchases at a cost of about £1bn, although the government would be repaid as the energy is used, according to people close to the Octopus bid. Treasury rules prevent administrators of nationalised companies from hedging.

Octopus would pay more than £100mn up front for Bulb and also pay a percentage of any profits on the customers it inherits from the company, the people said.

About 30 energy suppliers collapsed last year as the result of inadequate capitalisation and rising wholesale gas prices. Although most customers of failed suppliers have been transferred to larger competitors, Bulb was considered too big so it was nationalised, with the cost borne by taxpayers.

Households are already paying about £94 a year to cover lossmaking customers from other collapsed companies transferred to new suppliers. That is expected to rise when the government transfers the estimated £4bn cost of Bulb’s collapse to bills next year.