Investment firm Berenberg has talked up the proposed merger of utilities SSE and Npower, claiming the tie-up makes “financial and strategic sense.”
In a note on the deal, the brokerage said it believed there was currently 8% upside for SSE’s shares assuming the merger progresses.
Berenberg believes the combined entity will be worth around £4.9bn post-merger and achieve £174m in synergies by 2023.
However, it also warned that should the energy regulator Ofgem set a price cap on energy tariffs at an uneconomic rate then this could put the merger in jeopardy.
As part of the deal mooted earlier this month, SSE would demerge its retail arm, while assuming majority control of Npower, currently owned by German utility player Innogy.
SSE shareholders would own around 66% of the combined company while Innogy would hold the remaining shares.
SSE’s shares are little changed since the merger was announced and have drifted around 6% lower over the past year.