Bye bye big six as SSE gets com­pe­ti­tion watch­dog go-ahead for Npower deal

Merger given reg­u­la­tory back­ing thanks to in­de­pen­dent sup­plier surge

Shares - - BIG NEWS -

UK en­ergy sup­plier SSE (SSE) has been given the pro­vi­sional go-ahead for its pro­posed tie-up with Npower by the Com­pe­ti­tion and Mar­kets Au­thor­ity (CMA), the UK's com­pe­ti­tion watch­dog.

An­a­lysts spec­u­late that the tie-up could be a big plus for the SSE in­vest­ment story at a tricky time for the en­ergy provider es­tab­lish­ment. Shares in SSE have spent the most part of three years in de­cline as reg­u­la­tor Ofgem has turned the screw and in­de­pen­dent op­er­a­tors have emerged to eat into mar­ket share.

The in­dus­try is fac­ing the in­tro­duc­tion of tar­iff price caps in De­cem­ber in a UK gov­ern­ment bid to cut bills for mil­lions of house­holds. A 2016 re­port by the CMA found con­sumers were pay­ing around £1.4bn a year in ex­ces­sive fees charged by the six largest en­ergy firms on their stan­dard vari­able tar­iffs (SVTs).

SSE shares, now trad­ing at £12.70, were chang­ing hands for close on £17.00 in May 2015.

The pro­posed SSE/Npower merger is a com­plex agree­ment that would in­volve split­ting out SSE’s house­hold en­ergy divi­sion from the bit of the com­pany that sup­plies busi­nesses, plus other op­er­at­ing as­sets.

That would turn the UK’s so-called big six en­ergy sup­pli­ers into a big five. It would also put the com­bined SSE/Npower busi­ness on a par with Bri­tish Gas, the UK’s big­gest provider of gas and elec­tric­ity by cus­tomer num­bers, owned by Cen­trica (CNA).

SSE is the sec­ond largest of the big six by cus­tomer num­bers, with Npower cur­rently the small­est of the big six with around 4.7m cus­tomers. Com­bined the joint com­pany would have close to 11.5m cus­tomers, about the same as mar­ket leader Bri­tish Gas.

Cut­ting com­bined op­er­at­ing costs and over­lap is the main rea­son why the pair want to merge, with ‘plenty of syn­er­gies to un­lock in get­ting Npower up to the same level of prof­itabil­ity as SSE,’ ac­cord­ing to Beren­berg an­a­lysts.

SSE it­self has es­ti­mated ‘greater than £100m’ of cost syn­er­gies, al­though some in­vest­ment num­ber crunch­ers think these sav­ings could be much big­ger.

‘This is good news for SSE as we think the re­tail merger and spin-off of a new in­de­pen­dent re­tail busi­ness is a plus for the in­vest­ment case,’ say Beren­berg in­vest­ment ex­perts. (SF)

Newspapers in English

Newspapers from UK

© PressReader. All rights reserved.