Pennon's £380m SES Water buyout likely to be approved, says watchdog

14 May 2024 , 13:29

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

Pennon's £380m SES Water acquisition is on track for approval, according to the competition watchdog.

The Competition and Markets Authority (CMA) said this month that it might approve Pennon's takeover of Sutton and East Surrey (SES) Water, potentially expanding its reach to 845,000 customers. Initially, the CMA expressed concerns that the merger could diminish Ofwat's regulatory power by removing SES from its dataset.

However, a recent update on May 14 indicated a shift in stance after Pennon proposed to maintain separate reporting for SES, easing regulatory worries. The CMA now believes there are "reasonable grounds" to think that Pennon's approach could make the deal acceptable.

Previously, the watchdog feared that losing SES Water's data would complicate setting industry benchmarks for cost and service quality due to fewer comparison points. Pennon acquired Sumisho Osaka Gas Water UK, which includes SES Water, in January for £380million.

SES Water serves a substantial customer base in south-east England, covering areas like East Surrey, West Sussex, west Kent, and south London. Besides SES Water, Pennon owns several other water companies including South West Water, Bristol Water, and Bournemouth Water.

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This potential takeover comes at a challenging time for the UK water sector, which has faced intense scrutiny over issues like sewage discharges. Meanwhile, rising bills and mounting debts, coupled with ongoing rewards for shareholders, have led to a drop in consumer confidence in recent years.

Last year, Pennon announced plans to invest £750million in improving its existing water infrastructure over the two financial years leading up to 2025, a figure it later increased to £850million. Before the SES deal closed, Pennon reported a pre-tax loss of £8.5million for the year ending March 31.

Simultaneously, it boosted its dividend to shareholders to £112million, marking 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," stated the watchdog on Tuesday.

The CMA has until July 16 to decide whether to approve the deal or refer it for a more thorough investigation.

Lawrence Matheson