Pennon's £380m SES Water takeover approved after investigation by watchdog

14 June 2024 , 14:37

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

Regulators have approved Pennon's £350million buyout of Sutton and East Surrey (SES) Water, which means water services for 845,000 customers will fall under the control of the FTSE 250 firm.

The Competition and Markets Authority (CMA) had previously raised concerns that the deal could weaken Ofwat's authority as water regulator, as it would remove SES from its dataset. The watchdog feared that the loss of SES Water's data would hinder its ability to estimate cost allowances and set service quality targets across the industry, due to having fewer points of comparison.

However, on June 14, the CMA gave the deal the green light after Pennon agreed to provide separate reporting information for SES, distinguishing it from the rest of its water business. The CMA stated that these measures were "appropriate to remedy, mitigate or prevent the prejudicial effect on Ofwat's ability, in carrying out its functions, to make comparisons between water enterprises". Pennon acquired Sumisho Osaka Gas Water UK, including its subsidiary SES Water, in January for £380million.

SES Water supplies drinking water to 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 decision is a welcome boost for Pennon, which, like other water companies, has faced intense scrutiny in recent months due to a scandal involving sewage discharges. .

Pennon has been dealing with the fallout from a cryptosporidium outbreak in the Brixham area, which impacted 16,000 homes and businesses from May 15. Cryptosporidium is a nasty bug that can cause diarrhoea and vomiting. More generally, households up and down the country have seen their bills skyrocket and debts mount across the industry, even while shareholders continue to be rewarded. This has led to a serious decline in consumer confidence in recent years.

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Last year, Pennon said it would spend £750million on upgrading its water infrastructure over two years, before upping the figure to £850million. Before the SES deal went through, Pennon announced pre-tax losses of £8.5million for the year to March 31.

In a statement to the City, Pennon said it was "pleased that the proposed undertakings in relation to the separate reporting of SES Water's costs and performance have now been accepted".

Lawrence Matheson