First Utility Targeted By £500m CVC Bid

The largest challenger to the ‎big six energy suppliers has been approached about a £500m takeover as regulators push for greater competition across the industry.

Sky (LSE: SKY.L - news) ‎News has learnt that CVC Capital Partners, the private equity firm which counts Formula One motor racing among its most lucrative investments, has made an offer to buy First Utility.

CVC (Taiwan OTC: 4744.TWO - news) 's move came just ahead of a report last week by the Competition and Markets Authority (CMA) which 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.

The company has been exploring a stock market flotation for several months and is in the process of appointing investment banks to work on a public listing, according to insiders.

Such a move would not take place until after the CMA publishes its final recommendations for energy market reform, which are expected towards the end of the year, a source added.

Responding to last week'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 that First Utility's board continued to be focused on a public share offering, addding that it received takeover interest on a regular basis.

However, CVC is said to be keen to pursue its interest in 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 last week, 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.

First Utility 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.

CVC also declined to comment.