Perth-based energy giant SSE said it agreed to demerge its household energy and services business in Great Britain with Innogy subsidiary Npower Group plc to form a new listed UK company.
The combination, if allowed, would create the UK’s second largest energy supplier with around 11.5 million customer accounts, making the new firm second only to Centrica’s British Gas which has more than 14 million customer accounts.
The proposed deal comes weeks after the UK government published a draft bill to cap prices for the the standard variable tariff in the UK energy market which could affect the profits of the UK’s biggest energy firms.
SSE has a high proportion of customers on standard variable rates.
Existing SSE shareholders would own 65.6% of the equity in the new company, with Innogy investors owning 34.4%.
Innogy intends to retain all of its shareholding in the new company for at least six months.
The chairman designate, CEO designate and chief financial officer designate will be appointed jointly by SSE and innogy.
“Completion of the transaction is subject to necessary shareholder and regulatory approvals …” said SSE.
“It is expected that the transaction will be completed by the last quarter of 2018 or the first quarter of 2019.”
Separately, SSE said its adjusted operating profit fell 8% to £586.2 million and adjusted profit before tax was down 13.9% to £409.6 million in the six months to September 30.
Explaining its move to separate the retail business, SSE said: “A standalone retail business will be able to benefit from its own dedicated board of directors and specialist management team, supported by skilled employees and focused entirely on strategic and operational developments in the GB retail sector, including the competitive and regulatory environment.
“It will also have the ability to access and allocate its own capital, allowing day-to-day decision-making to be more closely aligned with strategy and thereby facilitating the delivery of greater benefits to all stakeholders going forward, including customers and employees …
“Although no decisions have been made at this stage, significant synergies are also anticipated, largely derived from operational cost efficiencies and capital expenditure savings from a combined IT platform.
“These savings are expected to ultimately enable the company to be an efficient competitor in its markets, competing more effectively and contributing to lower costs for customers.
“To the extent that any anticipated synergies result in implications for employees, no final decisions will be taken before any required consultation with employee representative bodies has taken place …”
SSE CEO Alistair Phillips-Davies said: “The scale of change in the energy market means we believe a separation of our household energy and services business and the proposed merger with Npower will enable both entities to focus more acutely on pursuing their own dedicated strategies, and will ultimately better serve customers, employees and other stakeholders.
“SSE will remain a balanced group of related businesses, specialising in the energy, infrastructure and services needed to support the transition to a lower carbon future, but continuing to serve business and Irish customers; whilst the demerged retail business will build on a history of operational excellence and first-class customer service to pursue its own dynamic strategy for GB customers.
“This process is likely to take some time and in the interim we remain absolutely focused on the critical job of delivering for customers.”
Tony Keeling, chief operating officer, SSE Retail, said: “We have an exciting opportunity to create a major new independent supplier with a single-minded focus on customers, combining the benefits of scale and experience with the ability to be more agile in our decision-making and to invest in meeting customers’ long-term needs.
“This is a new and different model which should leave us well placed to challenge the market, respond to the challenges and capitalise on the opportunities that lie ahead.”