Utilities giant Pennon has announced the acquisition of smaller water provider Bristol Water for £814m.
The deal will see the Exeter-based firm take on Bristol Water’s £389m debts, giving the sale an equity value of £425m.
FTSE 250 company Pennon also announced that it would return nearly £2bn to shareholders through a special dividend and a programme to buy back its own shares.
Pennon raised £4.2bn by selling off its waste management arm Viridor to private equity firm KKR in March 2020. It spent around £1bn on reducing its debt, and has been trying to find a use for the remaining cash.
Chief executive Susan Davy has previously hinted at the possibility of acquiring more companies as part of its growth aspirations in the water sector, with previous speculation that the firm was considering a bid for Southern Water, which covers Hampshire, Sussex, Kent and the Isle of Wight.
Ms Davy said: “We see attractive opportunities to continue to invest in the Bristol Water business to deliver enhanced resilience and water security to benefit customers in Bristol and beyond.”
She added: “This latest acquisition, building on a strong heritage and history, firmly cements Pennon as one of the leading UK water and waste water companies.”
Around 1.2 million people rely on Bristol Water for clean drinking water in and around the city.
Pennon has also announced plans to return £1.9bn to shareholders. The firm said it would pay special dividends of £1.5bn to shareholders and buy back shares for £400m.
Ms Davy said that Pennon may decide not to proceed with buyback plans if the company finds something else to invest in.
She said: “Our sector-leading dividend policy, which we have strengthened today, together with the proposed special dividend, recognises the ongoing loyalty of our shareholders, underpinned by the group’s confidence in our ongoing growth strategy, and building a sustainable future for all.”
Pennon also announced that it would invest a further £100m in its subsidiary company South West Water. The firm said the plan will create up to 500 new jobs, support the wider supply chain and help the region’s economy recover and protect the environment.
It comes as the group reported a 31% drop in pre-tax profit for its most recent financial year to £132m on revenue of £645m, up 1.2%.
Ms Davy said: “This has been a pivotal year for the group as we have repositioned Pennon to focus on driving sustainable growth in the UK water sector, building stability for the longer term, and recognising ongoing shareholder loyalty.”
