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Ovo to become second biggest energy provider after agreeing SSE deal

Ovo will have a combined household customer base of around 5 million after the deal.

Ovo is set to become Britain’s second largest gas and electricity provider after striking a £500 million deal to buy larger rival SSE’s household supply arm. (Andrew Milligan/PA)
Ovo is set to become Britain’s second largest gas and electricity provider after striking a £500 million deal to buy larger rival SSE’s household supply arm. (Andrew Milligan/PA)

By Holly Williams, PA Deputy City Editor

Ovo is set to become Britain’s second largest gas and electricity provider after striking a £500 million deal to buy larger rival SSE’s household supply arm.

The takeover will see Ovo add SSE’s 3.5 million households to its existing 1.5 million-strong customer base, catapulting it into the Big Six league of providers and second only to energy giant British Gas.

Around 8,000 staff working for the SSE energy services unit will also transfer to Ovo, which currently employs around 2,000.

SSE said it will do “all it can to ensure a smooth transition for customers and employees”, should the deal get the go-ahead from regulators.

It is expected to complete later this year or early in 2020.

Shares in SSE rose up to 2% after the deal was announced.

It comes after SSE was forced to scrap its merger with Big Six rival npower last December after the Government’s energy price cap plans sent shockwaves through the industry.

SSE said there would be no immediate impact for consumers and they would still continue to see SSE branding on their bills for the meantime.

Ovo – which was founded 10 years ago – has agreed to use the SSE brand under licence for a period of time while it transfers over the bought business.

Speaking to PA news agency, Ovo founder and chief executive Stephen Fitzpatrick said the deal was a “bold move” but insisted the group and its systems were ready.

He said: “There’s a lot of work to do, but it feels like, for us, this is the start of a new exciting chapter.”

“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,” he added.

He declined to comment on any whether Ovo would cut costs across the SSE retail business after the deal.

While it will transform Ovo into one of the UK’s largest energy suppliers overnight,  it will also see it take on a business that has been struggling.

SSE – currently the third-largest supplier in the UK energy market – recently revealed its energy services arm suffered a 68% drop in underlying earnings to £89.6 million for the year to March 31.

Gas and electricity suppliers have come under intense pressure in the UK following this year’s introduction of the cap on standard variable tariffs, as well as increasing competition from a swathe of smaller players.

In May, SSE announced plans to offload its energy services segment after more than half a million household accounts switched to a new supplier in the year to March.

The company vowed to sell or float its energy services arm by the second half of 2020.

Mr Fitzpatrick said Ovo – which sold a 20% stake to Japan’s Mitsubishi Corporation earlier this year – would look to turn around the SSE unit’s fortunes, but not put profits over investment and customer service.

“I don’t want Ovo to become a company that’s focused on quarterly profit numbers,” he said.

SSE chief executive Alistair Phillips-Davies said: “We have long believed that a dedicated, focused and independent retailer will ultimately best serve customers, employees and other stakeholders – and this is an excellent opportunity to make that happen.”

Energy market experts said the deal came as no surprise, given the collapse of the npower merger.

Stephen Murray, energy expert at MoneySuperMarket, added: “The likes of Ovo, Shell, Bulb and Octopus mean there’s a base of emerging suppliers who are continuing to challenge the Big Six in the domestic energy market and can fill the void left by SSE deciding to focus on other parts of its business.

“Today’s announcement will enhance the ever-growing competition for customers.”

PA

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