The FTSE 100-listed firm said yesterday that it was in talks with its rival, owned by Germany's Innogy. In a statement to the London Stock Exchange this morning, SSE said it has entered into an agreement with Innogy "in respect of a proposed demerger of SSE's household energy and services business in Great Britain and combination with Innogy's subsidiary Npower Group".
The companies said they will form a new independent UK incorporated company to be held by SSE shareholders (following the demerger) and with minority participation by Innogy.
"The scale of change in the energy market means we believe a separation of our household energy and services business and the proposed merger with Npower will enable both entities to focus more acutely on pursuing their own dedicated strategies, and will ultimately better serve customers, employees and other stakeholders," said SSE chief executive Alistair Phillips-Davies.
"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 will build on a history of operational excellence and first-class customer service to pursue its own dynamic strategy for GB customers.
"This process is likely to take some time and in the interim we remain absolutely focused on the critical job of delivering for customers."
Meanwhile, SSE today unveiled an eight per cent drop in annual operating profit during the six months to 30 September, from £637.2m to £586.2m, and a 13.9 per cent reduction in pre-tax profit, to £409.6m from £475.8m. The company hiked its dividend by 3.6 per cent to 28.4p.
The energy group's chairman, Richard Gillingwater, said: "The operating environment continues to present a number of complex challenges to manage, with significant political and regulatory intervention an ongoing feature of the energy sector.
SSE is focused, resilient and adaptable and those qualities continue to stand the company in good stead in responding to such interventions and other key changes.
"Our priorities for the rest of this financial year are clear. For customers, it's energy provision that meets their current and future needs; for investors, its annual growth in the dividend that keeps pace with inflation."