Unfair Bulb sale process prevented British Gas making ‘better’ bid, court told

Power companies are taking legal action over the sale of collapsed Bulb to Octopus (Aaron Chown/PA) (PA Archive)
Power companies are taking legal action over the sale of collapsed Bulb to Octopus (Aaron Chown/PA) (PA Archive)

The Government’s “flawed” handling of the sale of collapsed energy company Bulb prevented British Gas making a “better” offer that could have saved money for taxpayers, the High Court has been told.

Three major suppliers allege that an “unfair sale process” led to decisions “to commit billions of pounds of taxpayer money to facilitate the acquisition of a failed business” by rival firm Octopus Energy.

Scottish Power, British Gas and Eon have brought legal action over Bulb’s sale, arguing the Government’s decision-making process in relation to the transaction was “flawed and unlawful”, judges were told.

They are challenging two decisions of the Department for Business, Energy and Industrial Strategy (BEIS) made in October – to approve the takeover and to provide “very substantial central Government funding” to help with the transfer.

The department says the challenges against it are “without merit”, arguing that companies were aware they could seek Government support.

It warned that unwinding the sale now would be “liable to cause chaos”.

Octopus argues its rivals’ complaints are a “rewriting of history” and that its purchase of Bulb will be “extremely beneficial” for the Government and taxpayers.

In October, Octopus announced a deal to buy its rival and take on Bulb’s approximately 1.6 million customers after the 650-employee firm was placed into special administration in November 2021.

The sales process in this case was not a level playing field

Paul Harris, representing British Gas

It was later revealed in December that ministers were prepared to pay up to £4.5 billion to help fund the takeover of Bulb, but Octopus now claims the Government stands to make a £1.19 billion profit from the transaction.

Paul Harris KC, representing British Gas, told a hearing in London on Tuesday that “the process by which the subsidy was granted was seriously lacking in transparency, openness, fairness and equal treatment”.

He accused the Government of showing “discriminatory favouritism” to rival interested bidders and claimed British Gas would have made a “materially better” offer if it provided more information about potential Government support.

In written arguments, he said the Government “deliberately” failed “to make clear to British Gas, and many others in the process, that significant state subsidies were potentially available”.

He said British Gas owner Centrica’s CEO Chris O’Shea believed that if the sale process had been conducted “transparently and fairly”, then there was a “high probability” of it making a bid “on better financial terms than the transaction, requiring less Government subsidy”.

“The sales process in this case was not a level playing field,” Mr Harris said, adding that an initial strategy of “coyness” failed to make clear the subsidy available.

There was also a policy “deliberately to tell different things to different bidders” with only “certain bidders” receiving information about support, Mr Harris said.

“The membership of this club of certain bidders was totally confused,” Mr Harris said.

He also argued that the Government “failed to consider the impact that the decisions have on the competitiveness of the GB energy market and other suppliers”.

Lord Pannick KC, for Octopus, said in written arguments that its rivals had “the opportunity to take part in the M&A process for Bulb, but that all of them withdrew or stopped engaging for their own commercial reasons”.

He said Octopus was required to pay back about £2.95 billion over the Bulb sale, through an agreement that “expressly catered for the inevitability of changing energy prices”.

Lord Pannick said Octopus was “not given comfort, and still less offered” Government funding during negotiations nor was it given “any more information than other participants at an equivalent stage of the M&A process”.

“Octopus put together a strong, viable bid, and then embarked on tough negotiations to complete the transaction,” the barrister said.

Jason Coppel KC, for the Government, said in written arguments that it made “rational” decisions following expert advice that Octopus’s offer represented “the value that the market is placing on Bulb in the current sector environment”.

He added that alternatives to accepting the bid, such as re-opening the marketing process, were considered to be “more expensive for the public purse”.

Mr Coppel said the sale process “placed the onus on bidders to make any proposals for Government support, rather than offering it proactively” to avoid “leading the market towards requiring support”.

“Participants in the process were nonetheless aware that they could seek Government support, but none were assured that Government funding was guaranteed,” he added.

There was “no proper basis” for the inference that “Octopus was given information unavailable to others”, Mr Coppel said.

The lawyer said suppliers had not provided evidence that if they were made aware of the funding available to Octopus, they would have made better bids to buy Bulb.

The hearing before Lord Justice Singh and Mr Justice Foxton continues, with a ruling expected at a later date.