The last few months have seen an intriguing act play out in the corporate world. Privately owned Ecotricity’s hostile bid to takeover AIM-listed Good Energy may at first glance appear to be nothing out of the ordinary, but two key factors have been in play here which have in turn piqued the interest of many.
Firstly, the timing has been nothing short of extraordinary, happening just as the UK retail energy market faces unprecedented levels of uncertainty. A slew of bankruptcies has put the sector under the spotlight and given the challenges faced in migrating consumers to other providers, is tighter regulatory oversight now inevitable? And if so, what will this do for valuations? Despite the lure of what the suitor clearly saw as an attractive offer price, the vast majority of shareholders remained resolute in their commitment to the vision laid out by Good Energy’s management.
That leads into the second point which is the growing support for the idea that shareholders now want the companies they invest in to deliver more than just profits. Many people may treat such a comment with a degree of cynicism – after all, it’s the antithesis of perceived wisdom of capitalism – but again, it seems many of the investors in Good Energy bought into this and have taken the short-term financial hit as a result. Shares now trade around 10% below the mid-September highs, but the investor base is aligned with the company’s longer term goals – which we should all be, given the rapidly deteriorating situation with the global climate.
Ecotricity built up a 25.1% stake in Good Energy before going public with the offer, but beyond that for the most part they really struggled to get meaningful shareholder support. There was a last minute push, where they were able to secure commitment for a further 11.5% of the shareholders, but even this fell well below the necessary 50%. So, was the bid always doomed to fail? The reported breakdown of share ownership beyond the stake Ecotricity had amassed is insightful here with employee share schemes and individual insiders accounting for almost 15% of ownership. Institutions accounted for a further 22%, but it was the general public, with 37.2% of the holding, who really held the keys.
This may be something of an outlier as often it’s the institutional investors who have sufficient sway, although in this case there’s a good chance the mandates those managers were working to would have made the sale difficult to justify. So, by ensuring there are good channels of communication open to individual shareholders, this can make a real difference in defending such hostile takeovers. That’s when the role of a registrar comes in, and why the developments we have discussed recently in terms of the final stages of CSDR could prove instrumental in helping issuers connect better with all their investors.
At present, it can be difficult to maintain a relationship with those holding shares via a nominee structure. Good Energy by the nature of its very mission could be seen as having an investor base which is more engaged than would be the typical case, either through an interest in the green energy sector or by being customers, but CSDR offers the potential to reform the way securities registers are maintained, most notably by moving to a book entry model (giving issuers, holders and broker nominees a more flexible way of channelling communications). Whilst this may be seen as something of an administrative burden for issuers, it actually plays a key role in the further democratisation of share ownership and e-communications facilitates that.
As we move into a world which seems set to be increasingly driven by retail investors able to have a greater say in the shares they own – and one where the underlying market is becoming that much more accessible through the proliferation of ultra low cost stockbroking platforms – it’s vital that there’s a clearer link between issuers and owners.
Good Energy by all accounts managed to see off this hostile bid as a result of the engaged retail audience, along with the sizable holdings of insiders. This, however, is an outlier in a world which all too often doesn’t – or is unable to – give smaller shareholders the voice they are entitled to. Not only does this have the potential to be a future business school case study when it comes to the changing demands of investors who now want companies to deliver more than just profits, but it’s also a salutary lesson in the power of having those shareholders aligned with the mission of management.
This article originally appeared in the November 2021 edition of AIM Journal. You can can download a printable version here.