Energy providers Scottish Power, owned by Spanish company Iberdrola, and Ovo Energy are reportedly engaging in merger discussions.
Energy giants Scottish Power and Ovo Energy are reportedly in secret talks over a potential merger, which could create a third-largest energy supplier in the UK with over 6 million households under their belt.
Sources claim that executives from Iberdrola, Scottish Power's Spanish parent company, and Ovo have been engaging in exploratory discussions recently about the idea of a deal. However, these talks are still at an early stage, and any formal transaction would be months away, if it happens at all.
If the merge does take place, the combined company will rival Centrica-owned British Gas and Octopus Energy as the top dogs in the energy supply market. Ovo, as the larger company with 4 million customers, could potentially absorb Scottish Power and contribute cash to the expanded company, according to banking sources.
Meanwhile, Ovo is said to be exploring the option of raising £300m through the sale of new shares in the company, according to industry insiders. Several financial investors have received approaches from Rothschild, the investment bank advising Ovo, about this opportunity.
Ovo, founded in 2009 by Stephen Fitzpatrick, has positioned itself as a challenger brand providing superior service compared to industry veterans. The company made headlines last year when it bought the retail supply arm of SSE, making it one of the leading energy companies in the UK.
However, Ovo's growth hasn't been without challenges, particularly with its strained relationship with energy regulator Ofgem and a wave of customer complaints about overcharging. To address these issues, former J Sainsbury chief Justin King, who now chairs Ovo, has prioritized mending its regulatory relationships. He also brought in David Buttress, ex-CEO of Just Eat, as the company's new CEO.
Key to Ovo's long-term valuation is the performance of its technology platform, Kaluza, which licenses software to other energy suppliers and offers smart electric vehicle charging and heat pumps to customers. Ovo announced that Australia's AGL Energy bought a 20% stake in Kaluza at a $500m valuation last year.
Despite consolidation moves in the past, the UK energy market remains competitive, with Ofgem actively regulating the industry. The energy price cap is set to fall by 7% to £1,720 a year following Ofgem's announcement earlier this month.
Both Scottish Power and Ovo declined to comment on the rumored merger talks when reached for comment. However, more details are expected to emerge as the story develops. Stay tuned for updates on this potential game-changer in the UK energy market.
[1] https://www.bbc.co.uk/news/uk-scotland-50730934[3] https://www.bbc.co.uk/news/business-46398334[4] https://www.bbc.co.uk/news/business-61978819
- The potential merger between Scottish Power and Ovo Energy, if successful, could initiate a significant shift in the UK energy supply market, challenging the dominance of Centrica-owned British Gas and Octopus Energy.
- As part of its efforts to further strengthen its position, Ovo is reportedly looking to raise £300m through the sale of new shares, with interest coming from several financial investors.
- The performance of Ovo's technology platform, Kaluza, plays a crucial role in the company's long-term valuation, with Australia's AGL Energy having bought a 20% stake in it last year at a $500m valuation.
