Centrica, the owner of British Gas, is dealing with mounting pressure from activist investors looking to take advantage of market volatility caused by the global energy crisis.
The company’s board is reportedly preparing contingency plans with investment bankers from Goldman Sachs against a potential raid by hedge funds, according to The Telegraph.
Currently, Centrica’s board is led by chairman Scott Wheway, a former director of Boots.
The business is on alert after hefty stakes worth hundreds of millions of pounds changed hands through accounts fronted by investment banks last week.
A five per cent tranche of Centrica stock was also snapped up two weeks ago through a Bank of America account. The trade was made up of a combination of shares and contracts for differences, a typical tactic by investors planning to challenge a company.
Sources told the newspaper that Centrica’s board is preparing its defence ahead of an activist investor appearing on the company’s share register.
Centrica declined to comment on the developments when approached by City A.M.
Like its competitors, the energy supplier has suffered from spiralling wholesale gas prices, which has seen dozens of firms exit the market over the past four months.
Centrica’s chief executive, Chris O’Shea, took on the top job in March 2020 and has been working to turn the company around following a 70 per cent slide in its share price under former boss Iain Conn.
British Gas racks up new customers despite soaring wholesale prices
During the current crisis, British Gas has taken a proactive role, swallowing up 700,000 new customers from failed energy firms.
Most recently, it landed 176,000 customers from Together Energy, after the council-back firm ceased trading earlier this month.
It has onboarded the energy consumers through the costly supplier of last resort process which is designed to protect customers.
British Gas has now increased its customer base to nine million, after its numbers fell from 12m in 2018 as cut-price rivals emerged on the market.
The decision to boost the consumer base, with the firm already the UK’s largest supplier, has been contentious.
On the one hand, it could provide long term benefits, boosting its market share while a number of its competitors exit market.
However, the new arrivals are currently a burden for the supplier given the current high costs of energy and the limitations of the price cap, and if high energy prices are baked into the market, it could remain as a drain on resources.
Bulb Energy revealed after it fell into administration that the price cap, currently set at £1,277 per year for average use, meant it could only charge consumers 70p per therm, even as prices peaked at over £4 per therm last year.
Octopus Energy has also highlighted that it makes around a £700 loss on each customer due to the limitations of the price cap.
Alongside boosting the customer base, O’Shea cut 5,000 jobs to minimise costs as the pandemic hit, and sold off its US business direct energy for almost £3bn in 2020 to help pay down debt.
He wants to streamline the company to focus on selling energy and related products and services to households, such as heat pumps and thermostats.
It has had to keep hold of its stake in the UK’s ageing nuclear fleet, alongside its North Sea gas producer, after struggling to find buyers.
British Gas is not the only energy supplier facing activist challenges, as Good Energy is now set for a boardroom showdown after it announced plans to offload generation assets.