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Looking Back on the Failed Npower / SSE Merger

In 2018, Big Six energy suppliers Npower and SSE were given the go-ahead by the Competition and Markets Authority (CMA) to merge their retail operations, supposedly docking the group to a Big Five.

 

However, the proposal has failed to see signatures on paper as SSE cited certain circumstances working against the merger’s favour. The firm owed it up to the then-imposed default tariff cap by the government, ever-changing marketing conditions, and a data breach that happened to Npower in the same year.

 

Why did the merger fail?

 

Energy key players SSE and Npower called their supposed amalgamation quits in December 2018, just a few months after the CMA signaled OK to the proposal around August 2018.

 

SSE, the second-largest energy supplier, was positioned to form a new entity with Npower. It could have been roughly the size of British Gas, which was expected to provide services to some 11.5 million energy customers.

 

A statement by both companies revealed that the failure of the merger was pushed by multiple factors, including the government’s default price cap and increasing competition in the market. The companies also acknowledged the shaky business performance on both sides as a reason for calling off the merger.

 

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An SSE spokesperson stated the new firms would have incurred high integration costs on top of the already challenging market conditions.

 

SSE and Npower expected the integration of retail operations to proceed in early 2019 after being approved by the CMA. However, SSE expressed its reservations, particularly with the upcoming price cap during that year.

 

Declining business performance

 

SSE also disclosed in November 2018 that it had incurred increased business losses, while some 460,000 customer accounts were lost due to the tight competition in the market.

 

Npower, on the other hand, also revealed that its UK clientele declined in November, reporting that it lost about half a million customer accounts in the same year the deal fell. For the fourth consecutive year since 2015, the firm posted a loss, amounting to €72 million in 2018, according to the parent company, the German-owned Innogy.

 

Some of the prominent suppliers had trouble navigating the increasing market competition, taking risks of losses due to the expanding industry. Several small suppliers have joined the fray, causing several households to switch to these significantly cheaper providers.

 

However, SSE chief executive Alistair Phillips-Davies stated after the merger failure that the firm’s Energy Services remained profitable and still boasted a robust track record, which has given it the staying power to clinch a spot in the Big Six.

 

What could have been

 

The Competition and Markets Authority gave the go-ahead to the proposed deal between SSE and Npower because it saw no conflict in terms of standard variable tariff prices or the SVT. It indicated that customers were less likely to switch between Npower and SSE, and would instead prefer other suppliers.

 

The merger would have narrowed down the customer’s options for big energy suppliers, popularly known as the Big Six in the UK. This group consists of British Gas, E.ON UK, EDF Energy, SSE, and Scottish Power.

 

According to CMA’s chair for the inquiry group Anne Lambert, the firm’s investigations resulted in approving the merger as both companies are not close rivals when it comes to customer’s preference.

 

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Business customers of Npower were supposed to join the new entity, while SSE’s business division would have remained in SSE.

 

The deal did not go beyond securing the competition watchdog’s approval. No new name was decided around the time the proposal was given the green light. Further, no other changes were made to both companies since the CMA’s approval wasn’t completed due to the lack of a takeover, which was slated for October 2018 at the least.

 

Npower customers were already given precursor advises following the announcement of the approval. They were assured that no disruption would happen in the course of the integration, which unfortunately didn’t push through.