First Utility Picks IPO Banks As CVC Circles

The biggest challenger to the ‎UK's major energy suppliers has picked bankers to steer a £500m stock market listing even as it mulls a takeover by a private equity suitor.

Sky News understands that First Utility is close to appointing Credit Suisse (NYSE: CS - news) and JP Morgan to handle a public listing of the company.

News of the impending appointments comes days after it emerged that CVC Capital Partners had approached First Utility about a bid to acquire the company.

A decision by the energy retailer about whether to press the button on a sale or flotation is unlikely to be made until after competition regulators publish their final report on the industry towards the end of the year.

A provisional report this month from the Competition and Markets Authority (CMA) concluded that Britain's energy markets were not working effectively enough and that consumers were being overcharged as a result.

First Utility, which has more than 800,000 customers, is privately owned by its founders and other individuals, while Shell (LSE: RDSB.L - news) , the oil giant, holds warrants which would give it up to an 8% stake if specific value thresholds are met.

Responding to the CMA's interim report, Darren Braham, First Utility's co-founder and chief financial officer, said: "The CMA has shown that Big Six market power over disengaged customers has allowed them to exploit this position through their pricing.

Mr Braham said overspending by UK households on gas and electricity, estimated by the CMA at £1.2bn annually, was ‎likely to be even higher.

"We think the remedies proposed simply don't go far enough; we've long called for more to be done to address the lack of engagement such as showing the cheapest tariff on the market to customers on a variable tariff every month."

Sources said First Utility's board continues to be focused on a public share offering, adding that it received takeover interest on a regular basis.

CVC (Taiwan OTC: 4744.TWO - news) , which is the largest shareholder in Formula One motor racing, is said to be keen to pursue a deal and could return with a higher offer.

First Utility is not the only independent energy ‎supplier to receive interest from prospective investors as ministers and regulators push for more competition in the market.

Earlier this year, Ovo Energy sold a minority stake to Mayfair Equity Partners, a private equity firm - a deal that was also revealed by Sky News.

The six largest gas and electricity companies - British Gas, EDF Energy, EOn (Taiwan OTC: 3411.TWO - news) , Npower, Scottish Power and SSE‎ - were relieved that the CMA's recommendations were less draconian than they had feared, and that it was equally critical of government policies and Ofgem.

In documents published alongside George Osborne's Budget, the Government said it wanted to implement a system by the end of 2018 that would enable customers to change energy suppliers with 24 hours' notice.

That could play into the hands of challengers such as First Utility, which has sought to position itself as a consumer champion, cutting charges for customers who do not pay by direct debit, and launching a campaign to cut switching times.

However, it was also criticised last month for transferring customers on a fixed-rate tariff to a more expensive variable contract.

Rothschild, the investment bank, is advising First Utility, which declined to comment, on its options.