SSE's shares drop as doubts emerge over £3bn merger

Doubts over the future of the planned £3 billion merger of SSE's household supply arm with rival Npower saw shares in the Scottish energy firm come under pressure yesterday.

Surprise announcement over terms of SSE deal with rival Npower has spooked investors. Picture: Andrew Milligan/PA Wire

Analysts at one broker said the surprise news that the tie-up to create the UK’s second-biggest gas and electricity supplier had been delayed due to the incoming cap on default tariff prices had left the merger plans “in a shambles”.

Shares fell as much as 4 per cent during the day but recovered some of the lost ground to close 2.54 per cent down at 1,152.5p

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.

The two firms had been hoping to seal the merger of their retail operations in the first quarter of 2019 after the deal was recently given the green light by the competition watchdog.

But they said talks over the new terms of the deal will take “several weeks” and will likely see the deal delayed beyond the first quarter, although they stressed “all work” to complete the merger would continue.

SSE chief executive Alistair Phillips-Davies yesterday insisted the group continues “to believe that creating a new, independent energy supplier has the potential to deliver real benefits for customers and the market as a whole, and that remains our objective”.

It comes after the energy watchdog Ofgem confirmed on Tuesday that the energy price cap will come into force on 1 January, saving consumers up to £120 each.

The cap on poor value standard variable tariffs (SVTs) has initially been set at £1,137 per year for a typical dual fuel customer paying by direct debit, but will be updated every six months.

Analysts at Jefferies said speculation suggested the deal was “in trouble”, but added it was unlikely just to have been caused by the price cap.

They said: “While price caps are a major headwind for UK energy suppliers, this issue is well-known in the market and the level at which the cap has been fixed was widely anticipated across the sector.

“In our view, ongoing market share loss, mounting losses at Npower, the need to potentially inject capital in the new RetailCo, along with SSE’s own weakened financial position as a result of its recent profit warning, have all likely contributed to putting this merger at risk,” they added.

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”.

Ofgem waived through the merger with Npower in October, having conducted a full inquiry amid initial fears it could lead to higher prices.

Innogy-owned Npower and SSE announced in November that their British household energy supply and services businesses would join forces, reducing the Big Six energy suppliers to five.