UK watchdog raises concerns over Pennon-SES water deal

(Reuters) -British water company Pennon faces in-depth regulatory investigation of its purchase of rival Sutton and East Surrey (SES) Water unless it can address concerns raised by the competition watchdog.

Britain's Competition & Markets Authority (CMA) said on Friday the deal could hamper water regulator Ofwat by removing SES Water from its dataset and reducing the number of comparators available to estimate cost allowances and set service quality targets.

Pennon, which bought the holding company of SES Water in January for an enterprise value of 380 million pounds ($477 million), said it would offer undertakings to address the CMA's concerns by the required deadline of May 13.

"Proposed undertakings will ensure that the acquisition does not prejudice Ofwat's ability to make comparisons between water companies when carrying out its statutory functions... and ensure that the benefits of the acquisition are shared among the Group's stakeholders," it said in a statement, without giving details.

Britain's water companies are under pressure to ramp up investments after a public backlash over poor environmental standards at a time when the companies have continued to pay executive bonuses and dividends to shareholders.

"We will continue to contribute to the process and provide our opinion on any alternative proposals or 'undertakings in lieu', if these are offered," Ofwat said in a statement.

Pennon owns South West Water, Bristol Water and Bournemouth Water in the south and west of England. SES Water is a drinking water only supplier in south east England.

($1 = 0.7959 pounds)

(Reporting by Radhika Anilkumar and Prerna Bedi in Bengaluru; Additional reporting by Eva Mathrews; Editing by and Varun H K and Mark Potter)