SSE merger with Npower hangs in the balance as parties renegotiate terms

Lloyd Doyle
November 11, 2018

If the mega merger still goes ahead, it will amount to one of the biggest shake-ups of the United Kingdom energy market for years, reducing the big six to five and creating a firm with similar scale to British Gas for the first time.

Energy firms SSE and Npower are renegotiating the terms of a merger of their United Kingdom retail operations, blaming the introduction of an energy price cap.

The energy firm said it had become apparent that the impact of some "recent market developments", including the price cap, meant that the "commercial terms associated with the proposed combination will need to be reconsidered".

The two companies were aiming to complete the merger - which would cut the "Big Six" energy firms down to five - in the first quarter of 2019.

Analysts at one broker said the surprise news that the tie-up to create the UK's second-biggest gas and electricity supplier had been delayed due to the incoming cap on default tariff prices had left the merger plans "in a shambles".

Regulator Ofgem proposed the price cap on default energy bills - those to which customers default once fixed price periods end - to save households about 1 billion pounds ($1.31 billion) a year.

The government introduced legislation earlier this year to establish the price cap following concerns about how efficiently the energy market was working.

It said the negotiations would include talks about "potential additional direct or indirect financial contributions by each party".

Adjustments are being made to the merger between Npower and SSE's retail arm due to "adverse developments in the United Kingdom market", Npower's parent company Innogy SE has announced.

Analysts at Jefferies said speculation suggested the deal was "in trouble", but added it was unlikely just to have been caused by the price cap.

SSE issued a profit warning in September, saying earnings at its household supply business will be significantly lower if Ofgem's cap is implemented.

Npower has struggled to make money from its United Kingdom retail business.

As a result, SSE's share price fell to £11.85 on Friday.

Assessing the broader implications of the delay is complicated by the convoluted nature of the European energy market.

A planned asset swap between Innogy's German parent RWE and peer E.ON EONGn.DE would see Innogy's assets, likely including npower, divided between the two companies.

Other reports by Iphone Fresh

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