SSE and npower merger ‘in a shambles’ after delays over price cap



Energy experts at Jefferies said the merger was left in a "shambles", with worries for the future viability of the deal, which aims to create the UK's second-biggest gas and electricity supplier.

SSE said it is likely that completion of the deal will be delayed beyond the first quarter of 2019, but all work to "seek to achieve the formation and listing of the new company will continue".

Last month, the Competition and Market Authority (CMA) cleared the way for the merger between Scottish utility SSE and Germany's innogy, NPower's parent firm.

Other recent developments have been blamed, including npower's requirements to post collateral against its credit exposure and its ability to obtain and retain an "appropriate" credit rating.

This week Ofgem set the final level of the price cap at £1,137 for a household with typical consumption, which the energy regulator expects to knock 5% off the profits of large suppliers.

In separate statements issued yesterday evening (8 November), both SSE and innogy, the parent company of United Kingdom supply firm npower, revealed that the two had entered into discussions to renegotiate the terms of the merger agreement first disclosed in November a year ago.

The regulator said it will cap average default electricity and gas bills at 1,137 pounds a year from January 1, a level well below the most-used tariffs set by the country's big six suppliers.

It said the talks were expected to take place over several weeks, with an update on progress to be given by mid-December.

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.

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

Analysts at Bernstein said they believed the need for a cash injection into the new entity "is the key driver for this need to adjust commercial terms".

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

SSE revealed late on Thursday that the pair are renegotiating the terms of their tie-up as a result of the cap, although stressed they were still committed to the deal.

Assessing the broader implications of the delay is complicated by the convoluted nature of the European energy market. "Both innogy and SSE continue to see the benefits of a combination of the two businesses", he added.

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