SSE has agreed to sell its energy services business to challenger supplier Ovo Energy for £500 million.
The deal, which will see all 8,000 employees at SSE Energy Services transferred to Ovo, is expected to complete later this year or early 2020 and is subject to regulatory approval, including from the Financial Conduct Authority and Competition and Markets Authority. A long-stop date has been set for 31 May 2020.
The two sides said a transitional services agreement would be put in place for a period following completion, with SSE providing certain services to Ovo.
The headline value of the deal, which was flagged up last month, comprises £400 million in cash and £100 million in loan notes.
SSE said the net cash proceeds of the transaction would be used to reduce its net debt.
In its latest annual results SSE Energy Services made a pre-tax profit at £35.3 million and an adjusted operating profit of £89.6 million.
Ovo was founded in 2009 by Stephen Fitzpatrick and is the UK’s largest independent energy supplier, serving 1.5 million customers. Employing 2,000 people, Ovo has increased its customer base by 50 per cent in the last year.
Successful completion of the deal will propel Ovo to the second-largest supplier behind Centrica-owned British Gas with 5 million customers.
Alistair Phillips-Davies, chief executive of SSE, said: “We have long believed that a dedicated, focused and independent retailer will ultimately best serve customers, employees and other stakeholders – and this is an excellent opportunity to make that happen.
“Ovo shares our relentless focus on customer service and has a bold vision for how technology can reshape the future of the industry. I’m confident that this is the best outcome for the SSE Energy Services business.
“Following the transaction, SSE will be able to give an even greater focus to delivering the low carbon infrastructure needed to help the UK reach net zero emissions.
“We have a clear strategy around developing, operating and owning renewable energy and electricity network assets, along with growing businesses complementary to this core.
“With a large and growing renewable energy pipeline and a leading position in the electricity networks needed to deliver low-carbon energy reliably to homes and businesses in an increasingly electrified economy, we are well placed to create value from the low-carbon transition.”
Stephen Fitzpatrick, chief executive and founder of Ovo said:“This transaction marks a significant moment for the energy industry. Advances in technology, the falling cost of renewable energy and battery storage, the explosion of data and the urgent need to decarbonise are completely transforming the global energy system.
“For the past three years Ovo has been investing heavily in scalable operating platforms, smart data capabilities and connected home services, ensuring we’re well positioned to grow and take advantage of new opportunities in a changing market.
“SSE and Ovo are a great fit. They share our values on sustainability and serving customers. They’ve built an excellent team that I’m really looking forward to working with.”
The announcement marks the potential end of a protracted sales process for SSE which had secured an agreement with Npower only to see it fall apart at the end of last year as market conditions worsened. As a result of this, the latter is now due to become part of Eon.