New company will be listed on the London Stock Exchange

SSE and Innogy have agreed to merge Innogy’s British retail business Npower with SSE’s household energy and energy services business to form a new independent retail energy company.

The new company will not be controlled by either Innogy or SSE. Innogy will hold a minority stake of 34.4 per cent in the business, while SSE plans to demerge its 65.6 per cent stake to its shareholders upon completion of the transaction.

Innogy chief executive Peter Terium said the merger is a “logical step” in the company’s strategy to review its market engagements if it “isn’t able to reach a leading position in them”.

News of the merger follows confirmation of a government cap on retail energy prices. Terium said the competitive landscape and the uncertain political environment for energy retailers in the UK mean “Npower would be better-placed to offer value to our customers and our shareholders as part of a new company, with the ability to succeed in the face of the challenges that lie ahead”.

“With this in mind,” he said, “we are convinced that bringing Npower together with SSE’s household energy and energy services business will combine unique skill sets into a major, independent British retail energy company that would achieve greater operating efficiencies and deliver better service to our customers. It would also deliver better on the future opportunities of the energy market in Great Britain.”

SSE chief executive Alistair Phillips-Davies said the “scale of change” in the energy market means the group believes a separation of its 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’s business retail and its Ireland businesses would not be included in the combined retail company.

The transaction is still subject to the approval of the supervisory board of Innogy and of SSE’s shareholders, as well as approval by competition and regulatory authorities.

Completion of the transaction and the listing of the new retail energy company are expected to occur in the last quarter of 2018 or the first quarter of 2019, provided all necessary approvals for the mergers are achieved by that time.

Until the merger of Npower and SSE’s domestic retail businesses becomes effective, the business operations of both Npower and SSE will remain completely independent.

The services offered by the combined retail company will include a wide range of energy solutions, including energy-related home services as well as business solutions, as well as the supply of gas and electricity.

Yesterday, SSE and Innogy both published stock market updates stating that negotiations are “well advanced”, although no final decisions have been made. A source quoted by Reuters said the management at Innogy are “no longer willing to accept the losses” from its retail arm Npower. The Telegraph was told separately that, with the government proposing a cap on energy bills, SSE executives viewed their supply business as “more trouble than it’s worth”.