Competition and Markets Authority (CMA), UK’s competition watchdog, has approved Ovo Energy’s proposed acquisition of the country’s second-largest energy supplier, SSE Energy Services.
By January 2020, the agreement is expected to be finalized but will still be subjected to the required regulatory approvals. Ovo says the completion of the transaction will enable the company to provide clean and affordable energy for every UK household.
Ovo Energy is anticipated to be one of Britain’s major energy suppliers since SSE has been serving around 3.5 million customer accounts, which will be added to Ovo’s existing 1.5-million consumers.
Both companies will be operating as separate entities and provide energy for their respective customers until the completion of the deal.
The CMA has cleared Ovo Energy’s £500-million takeover of the SSE’s energy supply arm, stating that this tie-up will not influence the energy market competition.
Not only does the deal make Ovo the second biggest energy supplier in Britain, but it also increases the affluence of Stephen Fitzpatrick, founder of the said company. His wealth is now valued at £600 million.
Fitzpatrick, a former banker, founded the company a decade ago in Bristol. He currently has 67% at stake, valued around £1 billion before the SSE acquisition.
Regarding the CMA decision, Fitzpatrick commented that Ovo is delighted and looking forward to facing the challenge and work ahead. The group views it as an opportunity to reach more consumers and support the decarbonization efforts of the country.
Ovo Energy announced its agreement of acquiring SSE’s supply arm for £500 million earlier in September, wherein £100 million to be paid in loans and the other £400 million in cash. This acquisition is now considered as a historical moment in the energy industry.
The company has secured a £200M-worth investment from Mitsubishi in exchange for 20% of the stake. It also made deals with Barclays Capital to aid in financing the takeover.
Ovo is positive that the combination of its technological capabilities and SSE’s scale will provide smarter solutions to decarbonize homes and lower costs while still being able to receive the quality service they enjoy.
Fitzpatrick, a Belfast-born entrepreneur, made headlines when he commented on the ‘Big Six’ giving rip-off energy tariff and poor service to the people. He was also a donor for the Conservative party, giving almost £200,000 since early this year.
SSE plans to put the net proceeds of the agreement to reduce the net debt it has incurred over the years. The said firm has also promised a smooth transition for both employees and customers, adding that no short-term changes for the consumer side.
SSE Chief Executive Alistair Phillips-Davies stated that Ovo shares their views on customer service and the vision of integrating technology to shape the industry’s future. He expressed his confidence that the deal will provide the best outcome for SSE.
The completion of the transaction would mean delivering net-zero emission efforts and establishing low-carbon infrastructure, according to Phillips-Davies. He cited that the company has a clear strategy concerning the development, operation, and ownership of renewable energy and network assets. The chief executive believes that the firm is well-placed to bring value to the transition from the current state to a low-carbon economy.
Regarding the deal, both companies have begun the process that is guided by the Transitional Services Agreement. SSE is expected to provide specific services to Ovo under the contract.
Ovo will absorb the 8,000 employees of SSE. Around 300 employees belonging to the SSE pension schemes will still be adequately funded on an agreed-to basis. These employees may transfer to the new SSE Energy Services pension scheme and be provided a top-up if necessary.
Existing customers of SSE will not be immediately affected after the completion of the transaction. The SSE brand will still exist and operate under the Ovo license for a limited set of time. This period allows an orderly and well-managed migration while maintaining a high level of standard for customer service.