Pennon Group PLC (LSE:PNN, OTC:PEGRY) would be weakening the power of the UK’s water regulator should it acquire Sutton and East Surrey Water (SES), Britain’s competition watchdog said on Friday.
A deal between the two companies would hamper Ofwat in its task of comparing the UK’s water suppliers, the Competition and Markets Authority (CMA) found after it completed its investigation.
Ofwat would see a reduction in the number of comparators available for it to analyse cost allowances and decide quality targets, the CMA explained.
Pennon will now have until Monday, May 13 to respond to the CMA’s findings and if the authority isn’t accepting of the response, it will launch a new, in-depth investigation.
Back in January, the FTSE 250 listed water provider confirmed the purchase of Sumisho Osaka Gas Water UK, the owner of SES Water, for £380 million.
SES’s purchase adds to Pennon’s portfolio of UK water suppliers which includes South West Water, Bristol Water and Bournemouth Water
Susan Davy, chief executive at Pennon Group, said: “We have been through this process before with our acquisition of Bristol Water and are confident that we will be able to offer a compelling package of undertakings that will fully address the CMA and Ofwat’s concerns.
“It is important to us that this deal receives the appropriate level of scrutiny so that all of our stakeholders feel reassured.”
Joel Bamford at the CMA said the authority would also speak with Ofwat to determine whether Pennon’s plans address the concerns brought to light.