The competition watchdog has launched a consultation on plans submitted by South West utilities giant Pennon to address concerns about its £425m takeover of Bristol Water.
The Competition and Markets Authority (CMA) said in December it would launch an in-depth investigation into the deal unless Pennon put forward suitable proposals showing how it would maintain separate price controls for the Bristol Water region within a merged water business.
Exeter-based Pennon, South West Water’s parent firm, has now submitted these plans and said it is confident a full Phase 2 review can be avoided and the deal will be approved.
It said the newly announced consultation, which ends on March 7, is standard procedure and in a statement to investors said: “ Further to Pennon's announcement on December 22, 2021, the CMA has announced that it considers there are reasonable grounds that the undertakings offered by Pennon might be accepted by the CMA under the Water Industry Act 1991 .
“Should undertakings be accepted by the CMA, this would enable the merger with Bristol Water to be cleared without reference to a Phase 2 merger review.
“In line with standard procedure, the CMA has confirmed that it will launch a consultation on the undertakings put forward by Pennon, which is expected to conclude by 7 March 2022.
“We will continue to work transparently and collaboratively with the CMA during this consultation process.”
Pennon's acquisition of Bristol Water Holdings UK Limited completed on June 2, 2021 and in line with standard procedure was subject to CMA review under the Water Industry Act 1991.
But the CMA found, after its initial probe, that the tie-up could impact regulator Ofwat’s ability to make comparisons between the water companies, leading to the under- or over-funding of individual companies.
When the CMA completed its Phase 1 merger review it confirmed its intention to pursue a Phase 2 merger review unless undertakings it considers to be acceptable were put forward by Pennon.
On December 22, 2021, Pennon announced its intention to offer “appropriate undertakings in lieu of a Phase 2 merger review”, and submit them by December 31, 2021.
These undertakings would show how the firm proposed to maintain separate price controls for the Bristol Water region within a merged water business, the company said.
Pennon claimed the combined entity would enable the most effective and efficient delivery of services for customers in all the regions served by the group, whilst also providing Ofwat with comparative cost and performance data. The CMA has now provisionally accepted the Pennon proposals and taken the next step of launching the consultation on them.
The Non-Household element of the acquisition was referred under the provisions of the Enterprise Act 2002 and was unconditionally cleared on November 5, 2021.
In November 2021, Pennon reported a £90.4m pre-tax profit for the past six months - a 4.3%% hike on the same period in Covid-hit 2020 - partly thanks to its acquisition of Bristol Water. Pennon saw a profit increase on the £86.7m underlying profit made in the first six months of the 2020/21 financial year and also saw a 21.8% jump in revenue to £389.3m for H12021/22. It was helped by the acquisition of Bristol Water, which contributed £41.6m to underlying revenue. This was described as “ahead of expectations” and also contributed £7.2m in profit and capital investment of £12.7m.
