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Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
UK energy supplier SSE (SSE) has been given the provisional go-ahead for its proposed tie-up with Npower by the Competition and Markets Authority (CMA), the UK's competition watchdog.
Analysts speculate that the tie-up could be a big plus for the SSE investment story at a tricky time for the energy provider establishment. Shares in SSE have spent the most part of three years in decline as regulator Ofgem has turned the screw and independent operators have emerged to eat into market share.
The industry is facing the introduction of tariff price caps in December in a UK government bid to cut bills for millions of households. A 2016 report by the CMA found consumers were paying around £1.4bn a year in excessive fees charged by the six largest energy firms on their standard variable tariffs (SVTs).
SSE shares, now trading at £12.70, were changing hands for close on £17.00 in May 2015.
The proposed SSE/Npower merger is a complex agreement that would involve splitting out SSE’s household energy division from the bit of the company that supplies businesses, plus other operating assets.
That would turn the UK’s so-called big six energy suppliers into a big five. It would also put the combined SSE/Npower business on a par with British Gas, the UK’s biggest provider of gas and electricity by customer numbers, owned by Centrica (CNA).
SSE is the second largest of the big six by customer numbers, with Npower currently the smallest of the big six with around 4.7m customers. Combined the joint company would have close to 11.5m customers, about the same as market leader British Gas.
Cutting combined operating costs and overlap is the main reason why the pair want to merge, with ‘plenty of synergies to unlock in getting Npower up to the same level of profitability as SSE,’ according to Berenberg analysts.
SSE itself has estimated ‘greater than £100m’ of cost synergies, although some investment number crunchers think these savings could be much bigger.
‘This is good news for SSE as we think the retail merger and spin-off of a new independent retail business is a plus for the investment case,’ say Berenberg investment experts. (SF)
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