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UK retail energy supplier OVO buys SSE Energy Services

Increase font size  Decrease font size Date:2019-09-17   Views:123
Independent UK supplier OVO Energy is set to become the UK's second largest energy provider after agreeing to buy SSE Energy Services for GBP500 million ($623 million).

The proposed deal, announced Friday, would see 3.5 million SSE household customers (equating to over 6 million accounts) transferred to OVO, which has 1.5 million customers.
Only Centrica (British Gas) has more, with 19.6 million customer accounts as of mid-2019.

The deal is expected to be completed in late 2019 or early 2020 assuming anti-trust clearances.

The GBP500-million price tag is split between GBP400 million in cash and GBP100 million in loan notes, to be issued by OVO to SSE with an annual interest rate of 13.25% to 2029.

Some GBP59 million could be deducted from the cash payment reflecting debt-like items, including SSE Energy Services' accruals under the Capacity Market mechanism, which are at risk of non-payment.

An attempted merger of SSE Energy Services and Innogy's npower UK retail arm was abandoned late last year, with SSE blaming the government's retail price cap and tough market conditions.

"The price is lower than we have in our numbers (GBP840 million), but above more recent press reports (GBP250 million plus future payments)," sector analyst John Musk of investment bank Royal Bank of Canada said.

Musk said SSE shareholders "will be relieved that this transaction has finally happened and we appreciate that it leaves SSE with a cleaner structure allowing it to focus on two core segments of Networks and Renewables."

OVO is the UK's largest independent energy supplier, having increased its customer base 50% in the last year, notably as regulator Ofgem's appointed supplier of last resort, acquiring Spark Energy's 290,000 customers in November, 2018 and Economy Energy's 235,000 customers in January, 2019. It also opened operations in France and Spain and plans to enter the Germany, Italian and Australian markets in 2020.

In February this year Mitsubishi Corporation took a 20% stake in OVO for GBP216 million.

At the time OVO said it would use the cash to expand overseas and develop electric vehicle services, developing smart charging and vehicle-to-grid services. It has recently launched the world's first domestic vehicle-to-grid charger and is developing software to integrate EVs onto the grid.

"For the past three years OVO has been investing heavily in scalable operating platforms, smart data capabilities and connected home services," company CEO Stephen Fitzpatrick said Friday.

"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 decarbonize are completely transforming the global energy system," he said.
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