(Reuters) - British energy providers SSE and Innogy’s Npower received provisional approval to merge their retail units from Britain’s Competition and Markets Authority (CMA) on Thursday.
The merger would create Britain’s second-largest retail power provider, with a 23 percent market share behind Centrica’s British Gas with 27 percent.
It would also reduce the “Big Six” providers to five.
“The inquiry group has provisionally decided to clear the deal after finding that SSE and Npower do not compete closely on SVT (standard variable tariff) prices,” the CMA said.
“Our plans for a new British retail energy company are clearly on schedule and today’s announcement... is another important milestone,” Martin Herrmann, COO Retail of Innogy, said in a news release.
Shares in SSE were up 0.28 percent in London while Innogy was up 0.08 percent in Frankfurt at 0900 GMT.
Combined, SSE and Npower would have 11.5 million customers, making the new company second only to Centrica’s British Gas, which has more than 14 million customer accounts.
The CMA will take evidence on the provisional decision until Sept. 20 before coming to a final view along with relevant regulatory bodies. The deadline for a final report is Oct. 22.
Innogy will hold 34.4 percent of the combined retail company while SSE will demerge its stake of 65.6 percent to its shareholders.
“We remain confident that the formation and listing of the new company is on track for completion by the end of SSE’s financial year,” SSE Chief Executive Alistair Phillips-Davies said in a statement.
Britain’s top energy providers face pressure from the government to curb high energy costs and are losing customers to smaller players.
As a result, analysts and banking sources say more deals could follow.
Innogy German parent RWE and peer E.ON are already planning an asset swap which would see Innogy’s assets, likely including Npower, divided between the two companies.
Britain’s CMA said it had not taken into account any potential impact from the proposed E.ON-RWE deal “as both the likelihood that this transaction will complete and the outcomes of any antitrust and regulatory reviews are uncertain.”
SSE and Npower have both said their proposed deal should go ahead despite developments in Germany.
All of Britain’s top energy suppliers have announced price increases this year, blaming rising wholesale costs.
Energy market regulator Ofgem is set to impose a price cap on the retail energy sector and will publish an indication of the cap level in September.
Reporting by Justin George Varghese in Bengaluru and Lefteris Karagiannopoulos in Oslo; additional reporting by Susanna Twidale and Nina Chestney in London; editing by Sai Sachin Ravikumar and Jason Neely