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SSE Domestic Energy Exit ?

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77ss
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Re: SSE Domestic Energy Exit ?

#94176

Postby 77ss » November 8th, 2017, 5:41 pm

dspp wrote:I don't see this as being SSE exiting domestic market at all. It looks to me as if SSE are doing an acquisition...

The key wording is:

The Board of SSE plc ('SSE') today announces that it has entered into an agreement with innogy SE ("Innogy") in respect of a proposed demerger of SSE's household energy and services business in Great Britain ('SSE Retail') and combination with innogy's subsidiary npower Group plc ('npower') to form a new independent UK incorporated company to be held by SSE shareholders (following the demerger) and with minority participation by innogy ('Combined Retail Company').

The only way it could be construed as an exit for SSE was if SSE were already planning to spin out the combined unit at some future point. I've seen nothing to suggest they intend this.



regards, dspp


I don't understand your point. Doesn't 'demerger' to form a 'new independent UK incorporated company' mean exactly what it says? Which shareholders end up owning the new company is surely an irrelevance.

Note some other phrases:

The shares of the Combined Retail Company will be admitted to the premium listing segment of the Official List


SSE will remain a balanced group of related businesses, specialising in the energy, infrastructure and services needed to support the transition to a lower carbon future, but continuing to serve business and Irish customers; whilst the demerged retail business.....


etc. Perhaps there is something I'm missing?

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Re: SSE Domestic Energy Exit ?

#94177

Postby dspp » November 8th, 2017, 5:43 pm

Dod101 wrote:Am I missing something? It reads to me like a merger of SSE's retail arm with npower, and a spin off of SSE's participation to SSE's shareholders with a minority continuing participation by innogy. That is what dspp's extract says to me anyway. If this goes through, we SSE shareholders will thus get shares in this new entity which will I assume be a regulated supplier of electricity and gas. It seems to me therefore that it should behave much like the other utilities and be priced in the market so as to produce an above average yield. Obviously if Corbyn is elected all best will be off.

Dod


Dod,
You are quite right. I am being dense. The industrial strategy is obvious and I think we all see that. However I was in error re the outcome as a corporate structure which is exactly as you say. Basically this is SSE and innogy saying to the politicians of both parties, "here you go, bankrupt this retail newco if you want to, and you will if you keep meddling". It is also saying to the unions "quit sticking up for your call centre/admin/etc staff".
regards,
dspp

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Re: SSE Domestic Energy Exit ?

#94199

Postby Dod101 » November 8th, 2017, 7:32 pm

77ss
I agree that the current lot are a complete shambles but what I meant was that in the current set up, the new company should behave like any other regulated utility but if Corbyn is elected and he goes forward with his nationalisation plans, all my comments on prospective yield etc goes out the window, ie as I said, all bets will be off.

The proposal maybe will take the heat off SSE and leave it to get on with its job, and the price freeze or worse will be left in the new company. It seems to me that, as usual, SSE is being quite pragmatic. Of course it cannot be a done deal because even if the two parties formally agree, I assume that the regulator will want to take a good look at it.

dpss
Thanks.

Dod

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Re: SSE Domestic Energy Exit ?

#94204

Postby Gengulphus » November 8th, 2017, 8:11 pm

Edit: I notice that I failed to spot that the thread had moved on to a second page and I was saying more-or-less the same things as others had said in that second page before I posted this. More trouble than it's worth for me to try to sort out what I'd added, though, so I'll leave it as it stands...

dspp wrote:I don't see this as being SSE exiting domestic market at all. It looks to me as if SSE are doing an acquisition (disguised as a JV) to bulk up their retail arm, i.e. a double-down decision. I have seen nothing to suggest that there is not a buy-out clause of the innogy (npower) part at some later date, and such a clause would be normal.

The key wording is:

The Board of SSE plc ('SSE') today announces that it has entered into an agreement with innogy SE ("Innogy") in respect of a proposed demerger of SSE's household energy and services business in Great Britain ('SSE Retail') and combination with innogy's subsidiary npower Group plc ('npower') to form a new independent UK incorporated company to be held by SSE shareholders (following the demerger) and with minority participation by innogy ('Combined Retail Company').

The only way it could be construed as an exit for SSE was if SSE were already planning to spin out the combined unit at some future point. I've seen nothing to suggest they intend this.

I think you're quite right that that's the key wording, but you're missing some of the key words it contains! Specifically, it's described as a "demerger", the new company is described as "independent", and it's described as to be held by "SSE shareholders", not by "SSE". It's basically describing a complex deal in which SSE and innogy get together to combine their "SSE Retail" and "npower" businesses to form a new company and they distribute that new company's shares to their shareholders. Once they've done that, SSE's and innogy's shareholders haven't exited the businesses (though they should be able to do so easily if they want, by selling the shares distributed to them), but SSE and innogy themselves have...

In short, those words imply that they are planning to spin out the combined unit as basically part of the same deal. It probably won't all happen absolutely simultaneously, as there will probably be things that need to be done in the right sequence, but I'd expect nothing to actually happen until it's all been approved, and then everything to be done in a matter of a few hours or days, just long enough to get all the formalities done in the right order.

Incidentally, my personal view is that this is basically political defensive manoeuvring, aimed mainly at ensuring that if the politicians make the consumer-facing parts of their businesses unviable economically, it will be as clearly visible as possible as the new company making losses due to the government's actions, and the rest of their businesses will have as clear a case as possible for not cross-subsidising those losses or being nationalised along with them.

Gengulphus

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Re: SSE Domestic Energy Exit ?

#94248

Postby TUK020 » November 9th, 2017, 7:07 am

This is a political masterstroke at several different levels;
- as mentioned above, it removes risk of nationalisation from the bulk of the business
- it makes clear the cost of political meddling
- it also provides an escape route for a board who have clearly committed to rising dividends, but are in a position where dividend increases have been outstripping earnings growth for a long while. This will enable them to have a mechanism to provide cover for a 'reset'.
I admire the manoevring, but think I will sit on the sidelines until the dust settles.

I no longer hold SSE, but have a sizeable position in NG.

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Re: SSE Domestic Energy Exit ?

#94258

Postby Arborbridge » November 9th, 2017, 7:39 am

It occurs to me that if thte board of SSE is off loading part of itself to avoid political interference - shareholders might well be wise to follow suit by selling the new shares. If it's too hot for SSE's broad shoulders, then it certainly would be for any individual.


Arb.

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Re: SSE Domestic Energy Exit ?

#94296

Postby Gengulphus » November 9th, 2017, 9:43 am

Arborbridge wrote:It occurs to me that if thte board of SSE is off loading part of itself to avoid political interference - shareholders might well be wise to follow suit by selling the new shares. ...

Indeed - except that it also occurs to me that lots of shareholders might well be thinking that way, causing a 'knee jerk' plummet of the price of the new shares shortly after the demerger. That might make it the time to load up on them rather than disposing of them - provided one can take the risk in one's stride!

Arborbridge wrote:... If it's too hot for SSE's broad shoulders, then it certainly would be for any individual.

I don't think that's the case. An individual can look at how much they've got invested in the holding and decide that no matter how hot it is, they're answerable only to themselves and can take the risk. SSE's management can't do that, because of their responsibility to the shareholders collectively: if the holders of enough shares want the company out of the business, they've got to find an exit. (Indeed, I strongly suspect that this move is a consequence of big-shareholder "this is getting too hot politically - what are you doing about it?" feedback to management.)

Gengulphus

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Re: SSE Domestic Energy Exit ?

#94305

Postby Dod101 » November 9th, 2017, 10:03 am

As usual, we are getting well ahead of ourselves and the market. Even if it goes ahead we are looking at early 2019 I think I read somewhere. Plenty of water under the bridge before then and with the way things are moving with our so called government anything could happen.

Currently, sit tight and watch developments. no good speculating.

Dod

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Re: SSE Domestic Energy Exit ?

#94318

Postby Alaric » November 9th, 2017, 10:23 am

Dod101 wrote: It reads to me like a merger of SSE's retail arm with npower, and a spin off of SSE's participation to SSE's shareholders with a minority continuing participation by innogy.


It's a partial vertical integration of power supply and retail distribution in England and Wales. I think the Scottish part of the name was already making (hydro) and distributing electricity in Scotland as well as having the role of infrastructure provider fulfilled by National Grid south of the border. npower as National Power was part of the CEGB privatisation back in the Thatcher/Major era, as were the component parts of SSE also part of electricity privatisation.

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Re: SSE Domestic Energy Exit ?

#121086

Postby OLTB » February 28th, 2018, 4:00 pm

Hi all - a link here http://www.cityam.com/281423/competitio ... wer-merger clarifying that the CMA is reviewing the potential deal between SSE and Npower and will announce its initial findings on the 26th April.

Cheers, OLTB.

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Re: SSE Domestic Energy Exit ?

#121089

Postby idpickering » February 28th, 2018, 4:08 pm

OLTB wrote:Hi all - a link here http://www.cityam.com/281423/competitio ... wer-merger clarifying that the CMA is reviewing the potential deal between SSE and Npower and will announce its initial findings on the 26th April.

Cheers, OLTB.


A good spot OLTB, thank you.

Ian.


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