SSE pulls the plug on UK energy retail merger with Innogy

LONDON: SSE Plc and Innogy SE terminated plans to create the United Kingdom’s second biggest utility, the latest sign of pressure on the industry from increasing regulation.

SSE Plc’s board decided it wasn’t in the best interest of the company, shareholders and its customers to proceed with the deal after it emerged last month that more cash was needed in order to obtain an investment grade rating from the credit agencies.

Innogy yesterday fell the most since April after it cut its profit forecast for the year.

The sector is under intense scrutiny from lawmakers and a price cap on the amount utilities can charge customers on the most expensive tariffs that starts in January.

SSE painted a grim picture of expected earnings at its supply business in a statement last month, saying profit margins could be less than half what they were a year ago and that the outlook for next year was even worse.

“No deal is better than a bad deal for SSE,” said Ahmed Farman, analyst at Jefferies International Ltd said.

SSE will now focus on other ways to separate the retail unit, which it still expects to be profitable, the company said yesterday in a statement.

Innogy shares fell 2.4% to 39.98 in Frankfurt. SSE slid 1.6% to 1,072 pence at 8:16 am in London.

“This was a complex transaction with many moving parts,” said Alistair PhillipsDavies, chief executive of SSE.

“This was not an easy decision to make, but we believe it is the right one.”

Innogy last month wrote down the value of its retail arm Npower by 748mil (US$673mil) caused by the loss of 500,000 customers. — Bloomberg