Ovo Energy, the decade-old gas and electricity supplier, is plotting a move into the ranks of Britain’s biggest utilities with a bid to acquire the retail operations of SSE.
Sky News can exclusively reveal that Ovo has been in discussions for a number of months with SSE, the FTSE-100 group, about a deal.
A transaction is not certain to be struck, but sources close to the situation said this weekend that it could be agreed in outline within weeks.
If a deal is completed, it would pave the way for SSE’s exit from the challenged UK energy retail market and catapult Ovo into the big league of British power suppliers.
Under its pioneering chief executive, Stephen Fitzpatrick, Ovo has already amassed 1.5 million customers, some of whom have been acquired through previous takeover deals.
Further details of the potential deal with SSE were unclear this weekend, although sources said it was likely to cost Ovo several hundred million pounds.
A deal would add SSE’s 5.7 million customer accounts and approximately 9,000 employees to Ovo’s business – a mammoth acquisition for the smaller company.
The takeover would come about eight months after SSE said it would seek “an alternative transaction” for its energy services business after scrapping a merger with rival big six supplier npower.
Since then, the listed company has said that demerging the division and gaining either a premium or standard listing on the London Stock Exchange were under consideration, as well as an outright sale.
Sky News revealed in April that advisers to SSE had sounded out TalkTalk, the broadband supplier, about a possible tie-up.
Those talks did not progress.
Alistair Phillips-Davies, SSE’s chief executive, has promised to create the disposal of its retail business, which is expected to make more than £100m of profit this year, by the end of next year.
If the talks with Ovo progress towards a formal deal, insiders suggested that that deadline would be met comfortably.
The prospect of such a large takeover will raise questions about Ovo’s ability to absorb the business while continuing to serve customers effectively.
Mr Fitzpatrick, however, has earned a reputation as an innovative thinker about the future of the energy industry, and recently launched a campaign to help the UK achieve net zero carbon emissions by 2050.
Earlier this year, he sold a 20% stake in Ovo to Mitsubishi, the Japanese industrial titan, while Mayfair Equity Partners also owns a minority stake.
Ovo’s talks with SSE come amid a brutal period for many of the smaller suppliers in the UK gas and electricity market, with many having been forced by the regulator, Ofgem, into the arms of larger rivals.
The biggest player in the market, Centrica, which owns British Gas, has also been enduring a tough time.
Last week, its chief executive, Iain Conn, fell on his sword after being forced to announce a savage dividend cut. The UK’s energy retail market has been shaken up by a series of Government-commissioned measures aimed at bolstering competition, and ending what critics have argued is oligopolistoc behaviour by the ‘big six’ suppliers.
Most notably, a price cap has been introduced on standard default tariffs.
Announcing the abandonment of the npower deal, SSE cited “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”. In December, Sky News revealed that Centrica was seeking a judicial review over the way the regulator, Ofgem, had calculated wholesale energy prices for the purpose of the new cap.
Neither Ovo nor SSE would comment on Saturday.