(Adds SSE and npower saying merger still on track, updates SSE share price)
LONDON, March 12 (Reuters) - RWE and E.ON's surprise carve up of Germany's Innogy could complicate a merger of SSE and Innogy-owned npower to create
Britain's second largest energy supplier, although both
firms said it remained on track.
Under Sunday's proposed break-up of Innogy, its assets will be divided between parent RWE and E.ON, which would take over npower, potentially raising regulatory concerns, some analysts said on Monday.
SSE and npower said last year they would merge their retail gas and power operations, combining some 11.5 million customers to better challenge top-ranked British Gas.
Uncertainty over the merger plan hit SSE shares on Monday. They were down 1.6 percent to 1237 pence per share at 1526 GMT, underperforming the wider FTSE 100 index.
SSE and npower said in separate statements that their proposed deal was on track despite the development in Germany, without giving further details. .
Britain's Competition and Markets Authority (CMA), which is expected to make an initial decision by April 26 on the planned merger, said on Monday it will be engaging with both SSE and Innogy to consider the implications of the new German deal.
"The deal the CMA has been looking at is between Innogy's npower and SSE, but now if npower is owned by E.ON, that's three of the big six (energy suppliers) involved," Jefferies analyst Ahmed Farman told Reuters.
Britain's "big six" energy suppliers control around 80 percent of the retail energy market. The other three suppliers are Centrica's British Gas, EDF Energy and Iberdrola's Scottish Power.
"It could potentially complicate things from a regulatory point of view," Farman added.
Innogy, RWE and SSE have not commented on how the E.ON/Innogy transaction could impact the British merger which would create a new separately-listed retail company, with SSE shareholders holding 65.6 percent and Innogy 34.4 percent.
But Innogy said on Monday the joint venture with SSE has great strategic importance for the group, adding the deal had been filed with British antitrust bodies and was expected to close late this year or early in 2019.
One solution to potential regulatory hurdles could be for E.ON to sell down its Innogy share in the new company, said Peter Atherton, an associate at consultancy Cornwall Insight.
"We haven't seen any indication E.ON wants to do that, but if it (the SSE/Innogy merger) is a stumbling block for the wider deal then that is a logical solution," he said.
E.ON has not given any further details on its plans for npower, but said it intends to take on Innogys retail business.
Innogy managers, speaking at the group's annual news conference, said the UK market environment remained difficult, despite Innogy having cut prices and invested efforts in stemming customer losses.
(Reporting by Susanna Twidale, additional reporting by Oleg Vukmanovic; Editing by Alexander Smith)