Pennon’s £380m SES Water buyout likely to get green light, says watchdog

The Competition and Markets Authority said there are ‘reasonable grounds’ to believe the deal would be accepted.

SES Water supplies drinking water to south-east England, with 845,000 customers (Rui Vieira/PA) (PA Wire)

Britain’s competition watchdog has signalled it could approve Pennon’s buyout of Sutton and East Surrey (SES) Water, which would bring water services for 845,000 customers under the FTSE 250 firm’s control.

The Competition and Markets Authority (CMA) said earlier this month that the deal could undermine Ofwat’s authority as water regulator by wiping SES from its dataset.

But an update on May 14 said the watchdog could give it the green light, after Pennon offered to give separate reporting information for SES from the rest of its water business.

The CMA said there are “reasonable grounds” to believe Pennon’s proposed solution would lead to the buyout being accepted.

The CMA considers that there are reasonable grounds for believing that the undertakings offered by the parties, or a modified version of them, might be accepted

CMA

The watchdog was previously worried that losing SES Water’s data would make it harder to estimate cost allowances and set service quality targets across the industry, because it would have fewer points of comparison.

Pennon bought Sumisho Osaka Gas Water UK, including its subsidiary SES Water, in January for £380 million.

SES Water supplies drinking water to south-east England, with 845,000 customers across East Surrey, West Sussex, west Kent and south London.

Pennon also owns South West Water, Bristol Water and Bournemouth Water.

The investigation comes amid a torrid period for the UK water industry, which has seen operators put under the microscope in a scandal over sewage discharges in recent months.

Meanwhile, hikes in bills and swelling debt piles combined with continued rewards for shareholders has led to declines in consumer confidence in recent years.

Last year, Pennon said it would invest £750 million in upgrading its existing water infrastructure over the two financial years to 2025, which it later upped to £850 million.

Before the SES deal closed, Pennon reported a pre-tax loss of £8.5 million for the year ending March 31.

At the same time, it hiked its dividend to shareholders to £112 million, an increase of 10.9%.

“The CMA considers that there are reasonable grounds for believing that the undertakings offered by the parties, or a modified version of them, might be accepted,” the watchdog said on Tuesday.

The CMA has until July 16 to decide whether to clear the deal or refer it to a deeper investigation.