South West utilities giant Pennon has said it will submit proposals by the year end to address the competition watchdog’s concerns over its £425m takeover of Bristol Water.
Exeter-based Pennon, South West Water’s parent firm, said it would offer plans to maintain separate price controls for the Bristol Water region within a merged water business.
It comes after the Competition and Markets Authority (CMA) said it would launch an in-depth investigation of the deal unless Pennon puts forward suitable proposals. Pennon bought Bristol Water in June 2021, but the CMA found after its initial probe that the tie-up could impact regulator Ofwat’s ability to make comparisons between water companies, leading to the under- or over-funding of individual companies.
The CMA has now published the outcome of its Phase 1 merger review, which considered whether the acquisition of Bristol Water is likely to hamper Ofwat's ability to compare the two companies, and confirmed its intention to pursue a Phase 2 merger review unless undertakings it considers to be acceptable are put forward by Pennon.
The CMA will have until January 10, 2022, to reach a decision on whether to provisionally accept the proposed undertakings.
Should those undertakings be provisionally accepted, in line with standard procedure, the CMA would then launch a consultation on those proposals.
Pennon stressed it had worked “transparently and collaboratively” with Ofwat and the CMA and, in a statement to investors, said it intends to offer appropriate undertakings by December 31, 2021, which would seek to maintain separate price controls for the Bristol Water region within a merged water business.
Pennon said: “This combined entity would enable the most effective and efficient delivery of services for our customers in all the regions we serve, whilst also providing Ofwat with comparative cost and performance data.
Pennon's acquisition of Bristol Water Holdings UK Limited completed on June 2, 2021, and in line with standard procedure, is subject to CMA review under the Water Industry Act 1991.
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.
