SSE and npower have agreed to merge their domestic businesses to form a new energy giant.

SSE’s shareholders will hold 65.6% of the stake in the new energy company while innogy, npower’s parent company, will hold a minority interest of 34.4%.

innogy will also receive a break fee of £60 million if SSE’s shareholders fail to approve the deal by 31st July 2018.

The news comes less than a month after the UK Government published the draft bill to put a cap on energy prices.

The new firm is expected to serve around 11.5 million customers.

Alistair Phillips-Davies, SSE Chief Executive said: “The energy market is changing rapidly and we know that we need to do things differently. We believe there is an exciting opportunity to challenge the market and do something new and different. So we’re creating a new, independent British energy and home services company that will be better able to meet customers’ future needs in a changing market.”

The news comes as SSE has also reported a fall in pre-tax profits of 13.9% in the six months to September to £409.6 million.

Peter Terium, CEO of innogy said “great progress” has been made in restructuring npower over the past two years and have improved performance “considerably”.

He added: “However, when we look at the competitive landscape and the uncertain political environment for energy retailers in Great Britain, it is clear that npower would be better placed to offer value to our customers and our shareholders as part of a new company with the ability to succeed in the face of the challenges that lie ahead.”

The deal is subject to the approval of the Supervisory Board of innogy and SSE’s shareholders as well as approval by competition and regulatory authorities.

Completion of the deal and the listing of the new retail energy company are expected in the last quarter of 2018 or first quarter of 2019.