German energy group Eon seals takeover of UK supplier Ovo

German energy group Eon has agreed to buy UK household gas and electricity supplier Ovo, marking a major consolidation in the sector as the challenger company comes under pressure from tighter regulation. The deal was confirmed by the companies on Monday and will create a UK energy provider serving about 9.6mn customers, competing with Octopus Energy to be the country's largest supplier. They did not disclose a price but the FT previously reported that a deal would be in the £550mn to £600mn range. Ovo, which was set up by entrepreneur Stephen Fitzpatrick less than two decades ago, was among a group of challengers that sought to provide competition to legacy energy suppliers such as British Gas and Eon itself. The company had been seeking new investment as it faced pressure to meet UK energy regulator Ofgem's new capital adequacy rules, while Eon is trying to build scale to help it cope with thin margins in the sector and the shift towards lower-carbon energy. In a note to staff seen by the FT, Chris Houghton, chief executive of Ovo's retail business, said the company had "explored every credible" option "to secure the best future for Ovo". He added: "The conclusion is clear: becoming part of a larger organisation is the right long-term outcome for our customers and our people." Ovo serves about 4mn customers. Chris Norbury, chief executive of Eon's household supply business in the UK, which serves 5.6mn customers, said the deal would build a company with "the capability, the technology and the customer base to make new energy work for everyone". The deal, which is expected to close this year, does not include Kaluza, the technology platform developed and used by Ovo, and also licensed to other energy companies. Eon's UK business uses Kraken, the software platform developed by Octopus Energy, which last year overtook British Gas to become the UK's largest household energy supplier. Eon said it would continue with an existing licensing deal between Kaluza and Ovo's customers. Ovo launched in 2009 as one of the first in a wave of new suppliers that sought to challenge the so-called Big Six, including Eon and British Gas. It grew rapidly after it bought SSE's retail energy supply business in 2020. But the deal left it with debts and the challenge of integrating millions of new customers. Surging wholesale gas and electricity prices in 2021-2022 pushed roughly 30 competitors out of business and prompted Ofgem to bring in new capital buffer requirements. Ovo confirmed late last year that it was one of a few suppliers not yet meeting its capital adequacy target, causing the company to flag a "material uncertainty" over its ability to continue as a going concern. The deal will leave the UK domestic retail sector dominated by just a handful of major energy suppliers. Octopus Energy, Eon and British Gas will serve just under three-quarters of the market, followed by EDF and Iberdrola-owned Scottish Power with about 17 per cent, according to Cornwall Insight. Ovo founder Fitzpatrick said the takeover was the "right step", adding that the energy retail market was "now more regulated, more capital intensive and increasingly dependent on long-term investment and scale".