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Npower/SSE Merger Off the Table

The long planned for merger between big energy companies SSE and Npower has been called off.

Despite gaining approval from the Competition and Markets Authority in October, the companies decided to renegotiate their terms because of the introduction of the energy price cap but ultimately failed to reach an agreement.

SSE no longer believes the merger would serve the interests of the customers, employees, or shareholders.

Alistair Phillip-Davies, SSE chief executive, said: “This was a complex transaction with many moving parts. 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.

“SSE Energy Services remains a profitable business with a strong track record, a customer-centric culture and an excellent team that has enabled it to be a market-leader for many years. We will build on this while continuing with separation activity in preparation for its long-term future outside the SSE group.”

Innogy SE, the parent company of Npower, was concerned that keeping Npower would “hit its retail profits by €50m this year and overall group profits” would fall by as much as €250m in 2019.

In response to the failed merger, Martin Hermann, retail chief operating officer of Innogy SE, said: “Adverse developments in the UK retail market and regulatory interventions such as the price cap have had a significant impact on the outlook for the planned retail company.

“We negotiated intensively with SSE on adjustments to the transaction as announced in November 2017.

“Unfortunately, we could not reach an agreement that was acceptable for both sides. We are now assessing the different options for our British retail business.”

Due to the failure of the merger, SSE could face a bill of £67 million, and will also have to pay the £650,000 salary of the chief executive designated for the new company, Katie Bickerstaffe. However, Phillip-Davies did not believe the merger had been a mistake to “have embarked on”. He cited market conditions and the energy price cap, which had been tighter than anticipated, for the merger’s failure.

Going forward, the market will remain dominated by the ‘Big Six’ energy companies, SSE, Npower, British Gas, Scottish Power, EDF, and E.ON. Currently, SSE has 7.35 million customers and Npower has 4.06 million, after losing 500,000 customers in the first nine months of 2018.

SSE is likely to still sell its retail arm, making a future consolidation within the ‘Big Six’ firms possible. If this happens, Npower would continue to lose customers to smaller energy providers. The investment banking firm, Jefferies, has said that “E.On would likely have to absorb Npower and would likely spend several painful years to restructure and integrate it”. Industry insiders have also said that they “believed SSE’s retail unit would be too small to pursue an independent listing”.

The cancellation of the merger was followed by a 2% fall in UK-listed SSE shares.

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