Utility Week

4 | 20TH - 26TH SEPTEMBER 2019 | UTILITY WEEK Seven days... Ovo buys SSE's retail business for £500m S SE 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 com- plete later this year or in early 2020, subject to regulatory approval. 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 comple- tion, with SSE providing certain services to Ovo. The headline value of the deal 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 of £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 and employing 2,000 people. The company increased its customer base by 50 per cent in the past year. Successful completion of the deal will propel Ovo into the big league of energy giants – now set to become the "big five" following the European Commission approval of Eon's takeo- ver of Innogy, the parent company of Npower. Alistair Phillips-Davies, chief executive of SSE, said: "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. Stephen Fitzpatrick, Ovo chief executive, said: "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." AJ ENERGY Green light for Eon/Npower merger Eon has been given permis- sion by the European Commis- sion to buy Innogy. The deal will see Eon become a majority share- holder in Innogy, the parent company of the UK's Npower. German-owned Eon said it would carry out the integra- tion "swi•ly". The effective merger of the supply base of Eon UK and Npower means the big six will become the "big five". The deal will see Eon eventually acquire RWE's 87 per cent stake in Innogy, which it will add to the 4 per cent it has already bought on the stock market. This will take Eon's stake over the 90 per cent threshold, allowing it to compulsory purchase the remaining small stakehold- ings under German commer- cial law. Ovo 'got a bargain' The £500 million Ovo Energy is paying for the retail arm of SSE is "too low", an industry analyst has claimed. Lakis Athanasiou, a utilities analyst at Agency Partners LLP, said that while his is not a view shared across the market, he believes the cost per account is too low. Athanasiou believes the level of "competitive intensity" seen in 2019 was a result of a collapse in wholesale energy prices and will not be a permanent feature of the supply market. Speaking to Utility Week, he said: "In terms of the price paid for SSE residential, it is £88 per account. Assuming that SSE has no customer management systems issues, then it is too low, in my opinion, considering the price cap allows for £17 per account margin." £400m cash component of the deal £100m loan note component of the deal 8,000 SSE employees will transfer to Ovo 1.5m current number of Ovo customers 3.5m current number of SSE customers Ovo will continue to use SSE brand following transaction Ovo Energy has confirmed it will keep the SSE master brand licence following the planned acquisition of SSE's retail arm. One industry analyst has raised questions over the brand- ing of the new company and highlighted the fact that SSE's customers are "very loyal" to its Swalec, SSE, and Scottish Hydro brands. Rik Smith, energy expert at Uswitch.com, said: "Where they go with their prices remains to be seen, but there are also questions about the brand name that will be on people's bills in future. SSE customers are very loyal to its Swalec, SSE, and Scottish Hydro brands in various parts of the country." Ovo was founded by Stephen Fitzpatrick in 2009

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