Market commentary: The Ecotricity bid on Good Energy

The attempt by Ecotricity to buy out Good Energy has been trundling along since the summer. It’s a hostile bid and the target continues to push back, not on the usual basis of the offer undervaluing the future prospects of the business, but on the grounds that the two aren’t a good fit and it would take the company in the wrong direction.

The market had, until recently, been bidding up Good’s share price, tracking modestly below what had been offered, but that began to change at the start of the week and there are two coinciding factors in play here that are worth a second look. With retail energy companies going to the wall – another two failed yesterday – there must be an argument that these businesses warrant a re-rating – and not in a positive way. Their valuations are surely eroded by the sector-wide practices that have been adopted, along with the risk of tighter regulatory oversight going forward.

Secondly, however, there’s clearly some degree of commitment to the cause coming from Good Energy’s shareholders. This morning, Ecotricity updated the market on the latest scale of acceptances for the offer – as of yesterday lunchtime, it was still under 30%, and that includes the fact that the suitor has already amassed a 25% stake. This news has taken another swipe at the prospective share price gains posted by Good Energy, as even with the market sliding, a clear majority of investors are keen to sit tight and buy into the issuer’s commitments to make the world a better place.

The investor breakdown is therefore interesting to look at, with reports suggesting that the general public, individual insiders, and the employee share ownership scheme collectively account for more than 50% of investors. There’s a further 20% held by institutional investors but even here, it seems likely that many here would be aligned with the company’s “mission”.

Ultimately this is a relatively small company – the final offer posted by Ecotricity was seen as valuing Good Energy at something under £70m and at the time of writing the market cap was heading down towards £50m. Can we conclude that companies of this size, with a strong mission and engaged investors, can manage to defend themselves against hostile takeovers, or is it simply that the price wasn’t right this time round? Given the turmoil facing energy companies today, it seems this isn’t just about price. It also underlines the growing awareness that we all need to be doing more when it comes to cutting carbon emissions. The collective action of shareholders through this episode has the potential to become the business case study of the future – and underline how individuals holding shares directly rather than through anonymous funds – might actually be a factor in making the future that bit brighter.

 

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