Palm and Provincial House Estates Ltd has accused Shell of refusal to let Flowgroup PLC sell its energy subsidiary to OVO Energy Ltd.
Palm Global Small Cap Master Fund, LP together with Palm Active Energy, LP and Provincial House Estates Limited (UK), one of the largest shareholders of Flowgroup Plc, owner of approximately 16.68% of the outstanding voting rights of the Company, announced Friday that it intends to vote against the sale of Flow Energy Limited (“FEL”) to Co-Operative Energy Limited (“Co-op Energy”) under the proposed terms.
Joshua Horowitz, a Portfolio Manager of Palm Global Small Cap Master Fund LP stated, “As stated before last week’s Shareholder Meeting, we were recently made aware that the Directors of Flowgroup Plc successfully developed a contingency plan to sell the assets of FEL to OVO Energy Ltd. (“OVO”), should a proposed sale to Co-op Energy fail to achieve shareholder approval.
“As contemplated, an asset sale to OVO provides a 100% recovery for FEL’s senior creditor, Shell Energy Europe Ltd. (“Shell”), who will be paid in full, approximately £24 million, upon a completion date of April 30, 2018. A sale to OVO would also provide a superior return to the remaining secured creditors. Unfortunately, neither transaction is anticipated to result in any recovery to Preferred or Ordinary shareholders.
A proposed sale to OVO requires Shell’s approval, yet Shell has given no legal or regulatory reason for the delay. We demand that Shell publicly announce to all constituents why a sale to OVO is not feasible.”
Palm reiterated its intention to fully support an asset sale to OVO Energy Ltd. as soon as practicable.
The Directors of FEL and the Company have a fiduciary duty to protect the senior secured creditors and other secured creditors. The OVO Energy transaction achieves both of these objectives. We urge Shell and all of the Company’s Directors and advisors to work with appropriate haste to gain Shell’s approval and to complete a transaction.”
Chris Maybury of Provincial House Estates Ltd. (UK) has speculated that Shell will not respond to a proposed sale to OVO due to competitive reasons. Mr. Maybury believes that because Shell bought First Utility in December 2017 for a reported £200 million, Shell and First Utility might be trying to prevent OVO from growing. OVO and First Utility are the two largest independent retail energy companies in the UK. By favoring Co-op Energy over OVO, Shell gains a new trading customer at the other creditors’ expense.
Mr. Maybury stated, “A robust bid from OVO sits and collects dust on the table as the shareholders of the Company are forced to sell FEL to Co-op Energy for a pittance. If the market needed evidence of what could happen following Shell’s purchase of First Utility, it now has it. I believe this is a stunning example of conflict of interest and unfair competition. The regulatory apparatus should not let this go through without proper scrutiny. If a sale to OVO continues to be ignored, I expect to report Shell’s actions to the Competition and Markets Authority (CMA) and other appropriate regulators.”
Should the Co-op Energy transaction proceed, Palm will make every effort to recover any loss suffered by the secured creditors. Palm estimates the difference between the Co-op Energy transaction and the OVO Energy transaction to be over 10m GBP of additional proceeds to the secured creditors.
The shareholder meeting, which began on April 27, 2018 has been adjourned until April 30, 2018 at 12 noon at the offices of Hogan Lovells, 50 Holborn Viaduct, London EC1A 2FG. The meeting was adjourned in part to see if Shell’s approval for the FEL asset sale to OVO could be obtained over the weekend.