Foresight Group appears to have won the bidding war for Harmony Energy Income (HEIT ) with a ‘knockout’ offer that tops rival Drax (DRX).

Foresight has come back with a stronger offer after being outbid by Drax last month, proposing a 92.4p per share takeover of the UK battery storage fund that caused HEIT shares to rally nearly 10% to 96p this morning.

The offer values the portfolio at £210m. It represents a 5% premium to the Drax offer of 88p and a significant improvement on the 84p per share offer originally made by Foresight.

The price is a 42% premium to the closing price of 65.2p that HEIT shares changed hands at on 14 March, the last day before the offer period began, and a huge 94% premium to the price of 47.8p that the shares were trading at last May before the board announced it was looking for a buyer.

Jefferies analyst Fiona Huang said: ‘While unexpected, this should now represent a knockout offer, given the lack of any discount to net asset value (NAV), the high implied valuation of £845,000 per megawatt, and the substantial proportion of the share register already supporting the offer via irrevocables and a non-binding letter of intent.’

Huang said the only uncertainty is whether Drax will come back with a counter-offer high enough to ‘release the non-biding irrevocables, representing 21.45% of the shares’

Although another bid by Drax would have to exceed Foresight’s latest bid by 5%, the rally in the share price to above the offer price means investors could be expecting Drax to continue the bidding war.

Unlike Foresight, this would be a strategic acquisition for Drax, which is named after the UK’s largest and formally coal-fired power station, but is building a wider portfolio of sustainable energy assets. 

The board of HEIT said an acquisition by Foresight ‘delivers a superior outcome in terms of both price and deliverability for HEIT shareholders than the potential transaction with Drax’.

The offer gives shareholders the opportunity to ‘realise the value of their holdings, in cash, at an attractive value’, especially when viewed in the ‘context of the substantial discount to NAV at which the companies in the UK battery energy storage system (BESS) investment trust sector currently trade’.

The BESS sector is currently three-strong, including Harmony, with shares in peers Gore Street Energy Storage (GSF ) and Gresham House Energy Storage (GRID ) both trading at estimated 44% discounts.

The HEIT board has unanimously recommended the Foresight offer and withdrawn its recommendation for the Drax offer.

The directors of the trust, HEIT parent company Harmony Energy Limited, which owns 12% of the fund, and other major shareholders, including PrimeSTone Capital, which has an 11% holding, have all agreed to vote in favour of Foresight’s bid.

Norman Crighton, chair of HEIT, said since its launch in 2021, the portfolio has grown to eight 100% operational projects across Britain.

‘Despite positive progress in this regard, significant headwinds have curtailed HEIT’s revenue growth opportunities, resulting in HEIT trading at a material and persistent discount to NAV,’ he said, with difficult medium-term prospects as a standalone listed company.

Foresight partner Richard Thompson said the HEIT portfolio would be ‘a highly complementary addition to our existing managed portfolio of high-quality UK battery storage assets and other investments in renewable energy, storage and grid infrastructure’.

The asset manager already runs the £629m Foresight Solar (FSFL ) and £685m Foresight Environmental Infrastructure (FGEN ) London-listed funds.