Agreement to sell SSE Energy Services to OVO
SSE plc (“SSE”) has entered into an agreement to sell its SSE Energy Services business to OVO Energy Limited, a wholly owned subsidiary of OVO Group Limited, at an enterprise value of £500m.
SSE plc (“SSE”) has entered into an agreement to sell its SSE Energy Services business to OVO Energy Limited, a wholly owned subsidiary of OVO Group Limited, at an enterprise value of £500m comprising £400m cash and £100m in loan notes (the “Transaction”).
Completion of the Transaction is expected in late 2019 or early 2020 and is subject to the necessary regulatory approvals.
On completion, the net cash proceeds of this transaction will be used to reduce SSE’s net debt. See Transaction Details below.
In the event of successful completion SSE will do all it can to ensure a smooth transition for customers and employees. In the meantime, SSE Energy Services remains focused on the important work of delivering its sector-leading service for its customers – for whom nothing changes in the short term.
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. OVO shares our relentless focus on customer service and has a bold vision for how technology can reshape the future of the industry. I’m confident that this is the best outcome for the SSE Energy Services business.
“Following the transaction, SSE will be able to give an even greater focus to delivering the low carbon infrastructure needed to help the UK reach net zero emissions. We have a clear strategy around developing, operating and owning renewable energy and electricity network assets, along with growing businesses complementary to this core. With a large and growing renewable energy pipeline and a leading position in the electricity networks needed to deliver low-carbon energy reliably to homes and businesses in an increasingly electrified economy, we are well placed to create value from the low-carbon transition.”
Stephen Fitzpatrick, CEO and Founder of OVO said:
“This transaction marks a significant moment for the energy industry. Advances in technology, the falling cost of renewable energy and battery storage, the explosion of data and the urgent need to decarbonise are completely transforming the global energy system.
“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.
“SSE and OVO are a great fit. They share our values on sustainability and serving customers. They’ve built an excellent team that I’m really looking forward to working with.”
Transaction Details
As part of the Transaction:
- An amount of £59m will be deducted from the cash consideration reflecting debt like items including SSE Energy Services accruals in respect of the Capacity Market mechanism.
- On completion, in addition to the net cash consideration, SSE will receive a £100m loan note to be issued by a member of the OVO group due in 2029, unless prepaid earlier, with an annual interest rate of 13.25% payable in kind.
- SSE and OVO have agreed a ‘locked box mechanism’ with a date for transfer of economic interest of 30 June 2019 (subject to customary permitted leakage provisions).
- SSE has submitted Renewable Obligation Certificates in August 2019 in satisfaction of SSE Energy Services’ Renewables Obligation for the obligation period ended 31 March 2019, the last full financial year of SSE ownership. OVO will be liable for all Renewable Obligations accruing thereafter.
- All of SSE Energy Services’ c.8,000 employees will transfer to OVO.
- In order to ensure a smooth transition, for a period post completion, SSE will continue to provide certain services to OVO under a Transitional Services Agreement.
Certain defined benefits pension liabilities of SSE Energy Services, relating to up to approximately 300 employees, may transfer from SSE pension schemes to a new SSE Energy Services pension scheme as part of the transaction, with SSE providing a top-up (if necessary) to ensure that the new scheme benefits are fully funded on an agreed basis.
- There will be no immediate impact on customers after completion; the SSE brand will be operated by OVO under license for a period, allowing time for a phased and carefully managed migration and continued high standards of customer service.
The transaction is subject to the satisfaction of certain conditions including FCA and CMA approvals.
The transaction agreement has a long-stop date of 31 May 2020.
Benefits and outlook for SSE
SSE’s strategy is to create value for shareholders and society from developing, operating and owning energy and related infrastructure in a sustainable way. SSE has a clear focus on renewable energy and electricity networks, supported by businesses complementary to them.
With a clear vision to be ‘a leading energy company in a low carbon world’ and a corresponding business model aligned to ‘net zero’ carbon emissions by 2050, the future SSE is well placed to create value from the low carbon transition.
Ultimately, this transaction would be another stepping stone towards the execution of SSE’s clearly articulated strategy, leaving a more focused group able to specialise in the low-carbon infrastructure needed now and in the future.
In line with its stated strategy, SSE will also continue to supply energy to business customers in GB and to business and household customers in Northern Ireland and Ireland.
SSE's commitment to remunerating shareholders
SSE’s financial strategy remains the same with the Board of SSE committed to remunerating shareholders' investment and fully focused on delivery of the remaining four years of its five-year dividend plan to March 2023. It still intends to recommend a full year dividend of 80 pence per share in respect of the financial year ending 31 March 2020 and is targeting annual increases that keep pace with RPI for the three years after that, to March 2023.
