Scottish Power plots Ovo merger to create Britain's third-largest energy supplier
The Spanish owner of Scottish Power has held talks about a merger with Ovo to create Britain's third-largest energy supplier.
Iberdrola has been in preliminary discussions with Ovo about a tie-up to combine the two companies' 6.4m customers, Sky News reported, potentially creating a new business to rival British Gas and Octopus, the UK's two largest gas and electricity suppliers.
Ovo was launched in 2009 as a challenger to the traditional 'big six' and became Britain's fourth-largest energy provider in 2020 when it acquired SSE for £500m.
The business now has 4m customers, although it has faced criticism for customer service failings and overcharging households in recent years, which have led to fines from Ofgem, the regulator.
Scottish Power was bought by Spanish energy giant Iberdrola in 2007 for £11bn, but customer numbers have declined in recent years. It now serves 2.4m households, according to the latest data.
Any potential tie-up would involve Ovo's shareholders and Iberdrola retaining stakes in the combined group, with the Spanish company potentially putting more cash into the business.
No announcement is believed to be imminent and one source suggested that a deal between the two was unlikely.
However, if successful, it would become the third-largest household energy supplier in the UK.
Speculation of a potential merger comes after Ovo hired bankers at Rothschild last year to raise hundreds of millions of pounds in new investment.
Ovo's shareholders, including the Japanese conglomerate Mitsubishi and the investment funds Mayfair Equity Partners and Morgan Stanley Investment Management, are willing to raise cash either through a sale or by bringing in a new backer.
Stephen Fitzpatrick, the company's founder, also remains a significant shareholder but is no longer involved in running day-to-day operations.
The company has brought in Justin King, the former Sainsbury's chief, to chair the company and David Buttress, the former Just Eat boss who served as Boris Johnson's cost of living tsar, as its chief executive.
Meanwhile, Scottish Power's owners have increasingly focused on its renewables business in recent years, turning it into one of Britain's biggest wind power providers.
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