Ovo Energy is to become one of the UK’s biggest energy suppliers after agreeing to buy SSE’s home energy business in a £500m deal that breaks up the dominance of the big six energy suppliers.
Ovo will supply almost 5m households across the UK after striking a deal to take on 3.5m SSE customers and 8,000 staff to become the largest supplier behind British Gas.
Stephen Fitzpatrick, who founded Ovo in 2009, said the deal signalled “a significant moment for the energy industry” which has been dominated by six major energy suppliers since the market was deregulated in the early 1990s.
The deal marks a major milestone for the Bristol-based company, which secured a £200m investment from the Mitsubishi conglomerate earlier this year in exchange for a 20% stake in Ovo, valuing the company at £1bn.
The valuation propelled Fitzpatrick’s personal wealth to an estimated £600m.
The Guardian understands that Ovo has also secured a debt deal with Barclays Capital, the company’s financial adviser, to help finance the deal which was double the price expected by City analysts.
After several months of talks between the two parties, Ovo agreed to fund the deal through a £100m loan agreement with SSE, and a further £400m which is covered by a mix of cash and new debt arrangements.
The deal is expected to be completed later this year or early in 2020.
SSE will then be free to turn its back on the falling profits in its energy supply business and focus on building and running renewable energy projects and energy networks.
SSE’s home energy business made just £35.3m of operating profit by in the last financial year, down from £221.8m the year before. The Perth-based company’s share price climbed by 1.5% to almost £11.85 a share after the deal was unveiled on Friday.
The Unison trade union said the deal underlined the “precarious state” of the UK’s energy companies, which are grappling with the uncertainty of Brexit while facing a government-led cap on energy bills and the threat of nationalisation under a Labour government.
Christina McAnea, Unison’s assistant general secretary, said: “Staff at SSE will understandably be concerned their jobs might go following the move. That’s why we’ll be seeking assurances that not a single post disappears.”
SSE said it will set up meetings with major trade unions and employee forums in the coming weeks to discuss plans to integrate the companies and move SSE’s 8,000 staff to Ovo.
Alistair Phillips-Davies, chief executive of SSE, 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.”
SSE had originally hoped to spin off its energy supply business to form a new listed energy company with its struggling rival Npower. The plans fell apart late last year in what was seen in the City as an embarrassing failure for Phillips-Davies.
A City source said it was still too soon for Ovo to consider a market listing for its enlarged energy supply business, and one said it may choose to remain “fleet of foot” as a private company.
“Ovo is a hugely impressive, fast-moving company and Stephen’s vision is the driving force. This is a major opportunity for the company, and could bring huge change for the energy industry,” the source said.