'Big Six' energy merger called off ahead of price cap

A planned merger between two of Britain's "big six" energy firms has been called off because of "challenging market conditions".

FTSE 100-listed SSE was planning to spin off its household supply business in a tie-up with rival npower.

But SSE admitted "uncertainty" over the merger a month ago - a week after the industry regulator Ofgem set out its final plans for a price cap on default tariffs which is due to come into effect on 1 January.

The pair blamed the performance of their businesses, clarity on the final level of the price cap and tougher energy market conditions for the decision to call time on the deal which had been due to complete in the next three months following competition clearance.

SSE said: "These implications meant the new company would have faced very challenging market conditions, particularly during the period when it would have incurred the bulk of the integration costs."

The company added that it would now consider a demerger and separate listing for its supply business or whether to put it up for sale.

Its shares were trading 1.6% lower on the FTSE 100 in early deals.

Chief executive Alistair Phillips-Davies said: "This was a complex transaction with many moving parts.

"We closely monitored the impact of all developments and continually reviewed whether this remained the right deal to do for our customers, our employees and our shareholders.

"Ultimately, we have now concluded that it is not. This was not an easy decision to make, but we believe it is the right one.

"We are now exploring all the available options with a view to delivering this future in the best possible way. In this, the interests of our customers, employees and shareholders remain paramount."

Financial losses for its household supply arm had grown in the run-up to the proposed merger - partly due to a loss of customers to competitors.

It had warned that the price cap risked further pressure on profitability.

Lily Green, head of research at the auto-switching service Look After My Bills, said of the announcement: "This is a sigh of relief for consumers.

"The 'big six' becoming the 'big five' was a frightening prospect and a step in completely the wrong direction.

"The way to increase competition in the energy market is to lessen the 'big six's' stranglehold on the market rather than having two of the biggest merge."