SSE abandons merger with Npower as it bemoans Government price cap and ‘challenging’ market conditions
- Energy firms were unable to reach an agreement on financial support
- SSE now considering whether to spin off or sell its retail energy unit
- Merger was first thrown into doubt last month
Energy giant SSE has called off its planned merger with Npower, blaming the Government’s price cap and ‘challenging market conditions’.
SSE said it has been unable to agree terms on financial support for the new company and added that it will now consider spinning off or selling its retail arm.
The tie-up to create the second-biggest energy company in the UK behind British Gas was first thrown into doubt last month, when the company warned about ‘some uncertainty’ around the deal, due to the incoming cap on default tariff prices.
Merger called off: SSE said it was now considering whether to spin off or sell its retail arm
The deal was given the green light by the competition watchdog in October.
It would have seen SSE’s energy unit, which provides gas and electricity to households, removed from the main group, allowing it to focus on gas and electricity transmission.
SSE said it was now considering a standalone demerger and listing, a sale or an alternative transaction for its household energy division. SSE shares fell 1.5 per cent to 1,073p in morning trading.
‘Following further discussions […] regarding potential changes to the commercial terms of the proposed combination of SSE Energy Services and npower, the Board of SSE has today decided it is not now in the best interests of customers, employees or shareholders to proceed with the transaction,’ SSE said in a statement.
Its chief executive Alistair Phillips-Davies said it was a ‘complex transaction with many moving parts’.
He added: ‘We closely monitored the impact of all developments and continually reviewed whether this remained the right deal to do for our customers, our employees and our shareholders.
‘Ultimately, we have now concluded that it is not. This was not an easy decision to make, but we believe it is the right one.
‘We are now exploring all the available options with a view to delivering this future in the best possible way.’
The firm previously blamed delays on the Government’s recently introduced plans to cap energy bills at £1,136 a year.
The cap – which is due to come into force in January – will mean suppliers like Npower and SSE will have to cut the prices they charge.
Last month, SSE revealed widened losses for its household gas and electricity supplier and warned that operating profit margins would more than halve in the current financial year.
It said it lost another 460,000 customer accounts as fierce competition from small suppliers took its toll.
Meanwhile Npower’s German owner, Innogy, also reported falling customer numbers in the UK in November. It lost around 500,000 accounts this year and warned that the supplier will make a loss for the fourth consecutive year.
Price cap: Energy firms will have to cap annual bills at £1,136 from January
Russ Mould at AJ Bell said it was no surprise the deal was off as it looked complicated from the beginning.
He added: ‘The big utility companies are under pressure from an incoming price cap on standard variable tariffs, as well as rising competition from independent operators who are gobbling up market share.
‘The increasing ease with which you can switch providers has also contributed to the mass exodus of customers from the big utility firms.
‘However, eight small energy providers have stopped trading this year, potentially switching consumers’ focus back to the larger utilities as the public starts to question if small suppliers can deliver uninterrupted energy.’