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SSE, Innogy give up on British retail tie-up

The Hadyard Hill wind farm. Source: SSE (www.sse.com).

December 17 (Renewables Now) - The previously proposed merger of SSE (LON:SSE) and Innogy’s (ETR:IGY) retail businesses in Britain will not take place because the two companies could not reach an agreement on revised commercial terms.

The two parties agreed last year to combine SSE Energy Services with Npower -- Innogy’s energy supply division in the UK. The transaction got clearance from Britain’s Competition and Markets Authority (CMA) in October 2018 but due to the new energy price cap set by the UK government the pair had to restart negotiations and see if they can agree on new mutually beneficial terms. The talks were unsuccessful, according to separate announcements from the companies.

“Adverse developments in the UK retail market and regulatory interventions such as the price cap have had a significant impact on the outlook for the planned retail company,” commented Martin Herrmann, COO Retail of Innogy SE.

SSE said that the enlarged retail firm would no longer be able to meet trading collateral requirements in a sustainable way or list on the premium segment of the Official List and Main Market of the London Stock Exchange.

"The transaction has been impacted by multiple factors including the performance of the respective businesses, clarity on the final level of the default tariff cap, changing energy market conditions and the associated implications of these for both the joint business plan and the market in which the business would be operating," SSE said.

The board of SSE is now considering other options for its retail unit, including a standalone demerger and listing on either the premium or the standard listing segment of the Official List. A sale is also among the options.

And while SSE Energy Services is seen to be profitable and cash flow positive in both fiscal years 2018/19 and 2019/20, reclassifying Npower as “continued operations” led to downward adjustments to Innogy's financial forecast for 2018. Now, Innogy expects to book adjusted earnings before interest and tax (EBIT) of around EUR 2.6 billion (USD 2.94bn), down from the EUR 2.7 billion in its previous guidance, and an adjusted net profit of above EUR 1 billion, down from the previously projected level of above EUR 1.1 billion. Keeping Npower next year would reduce Innogy’s 2019 adjusted EBIT by an estimated EUR 250 million, the German group said.

Moreover, Innogy calculates that it will not be possible to distribute a dividend for fiscal 2018 on the same level as last year -- EUR 1.60 per share.

(EUR 1.0 = USD 1.132)

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