Mark Kleinman: Is it lights out for Ovo Energy?
Mark Kleinman is Sky News’ City Editor and the man who gets the Square Mile talking in his City AM column
Is it lights out for Ovo Energy?
Farewell then, Ovo Energy? The prospective demise of the challenger brand conceived by Stephen Fitzpatrick – if not the company itself – has been a long time coming.
Ever since Ofgem, the industry regulator, signalled its dissatisfaction with aspects of Ovo’s operations and governance, a sale to, or combination with, another player of scale in the UK residential energy supply market has felt like an inevitability.
In fairness its board, now chaired by former Virgin Money chief Dame Jayne-Anne Gadhia, has run a determinedly robust process to achieve such an outcome, thus avoiding the spectre of a Special Administration Regime in which shareholders would have been wiped out and Ovo’s customer base effectively nationalised. Having failed to hit Ofgem’s capital adequacy targets and held fruitless talks with a string of potential suitors, the possibility of a SAR was, for a while, not vanishingly small. As I revealed exclusively on Sky News at the weekend, a deal with German supplier E.ON is now close to being signed.
Ovo’s rapid rise, and its market positioning as a green, customer-friendly challenger brand, was in no small part due to Fitzpatrick’s buccaneering style. But according to numerous insiders, the at-times dire state of the company’s relationship with Ofgem was also partly down to the forthright and combative nature of its founder.
Bear in mind, though, that the decision of some of Ovo’s suitors to walk away from a deal had little to do with the company itself. I reported last year that Verdane, a potential investor from Norway, had abandoned talks with Ovo because of the uncertain regulatory climate. A similar reason, remember, was privately cited by KKR when it called off talks about a rescue of Thames Water.
This is not a coincidence. Instead of focusing on a predictable regulatory regime which international investors can survey with relative certainty, ministers obsess over gimmicks such as bans on executive bonuses. Long-term structural challenges are consigned to the box marked ‘too difficult’. For as long as this attitude persists, investors without an existing exposure to the market are probably right to steer clear.
Aberdeen ties itself up in knots over remuneration policy
How humiliating. Aren’t asset managers supposed to be exemplars of robust corporate governance, nimbly treading the tightrope between paying top executives competitively and best practice principles espoused by box-ticking wonks?
Try telling that to Aberdeen, the FTSE-250 fund management group which owns retail platform Interactive Investor. On the face of it, yesterday’s annual meeting suggests there isn’t much to make a fuss about. Its remuneration policy was approved with a 78 per cent vote in favour.
Rewind the clock a couple of weeks ago, though, and it’s not hard to see why Aberdeen – currently rudderless without a permanent chair – got itself into a mess. Its new three-year pay policy is about as complicated as it gets: a hybrid long-term incentive plan offering CEO Jason Windsor and other top executives featuring a fixed 2-to-1 ratio of performance shares to restricted shares.
The list of objections was a long one. In its report to investors, Institutional Shareholder Services, the proxy adviser, pointed out that UK-based investors “usually expect the hybrid model to be used only where companies have a significant US footprint and/or compete for global talent”. This could only be argued by Aberdeen, a largely domestic employer, to a limited extent.
Moreover, the new policy does something that Aberdeen’s own portfolio managers would be furious about if they witnessed it at investee companies: the removal of a relative total shareholder return component from the plan. Worse still for the recently re-emvowelled company formerly known as Abrdn, it was then forced to issue a clarifying statement to the stock exchange that it would cap awards at a combined 262.5% of salary. “Vote recommendations are unchanged,” noted ISS, drily. Aberdeen might have clinched victory in its vote, but it should rethink this misguided policy regardless.
Simoes returns to Santander as L&G plots next act
Antonio Simoes is going back to his roots – or sort of. Since taking over from the ebullient Sir Nigel Wilson as chief executive of Legal & General, the Spaniard has embarked on a reorientation of the financial services company’s strategy.
Selling its US business to Meiji Yasuda of Japan for $2.3bn and revaluing assets held on its balance sheet saw a hit to its solvency ratio – which measures its ability to meet long-term financial obligations to retirees – last month, with its shares off 5% on the day despite announcing a record share buyback of £1.2bn.
Simoes, though, retains the backing of L&G’s major investors, according to leading institutions. His focus on growing L&G’s bulk annuity business is, I’m told, about to see its executives strike a formal £1.5bn pension risk transfer deal with Santander UK – where Simoes used to work. It will be the latest in a string of such deals in an increasingly competitive market, which I understand is reflected in the transaction’s pricing. L&G and Santander UK both declined to comment.
On the theme of returning to one’s roots, though, could there be a further L&G-related twist? Brookfield, for whom Sir Nigel now chairs both Canary Wharf Group and – in this context more significantly – Just Retirement, has been rumoured in the past to have an interest in an L&G takeover. How delicious that would have been.