Pennon’s £380m SES Water takeover gets green light after competition probe

Regulators have cleared Pennon’s £350 million buyout of Sutton and East Surrey (SES) Water, meaning water services for 845,000 customers will come under the FTSE 250 firm’s control.

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

The watchdog was concerned 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.

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

It said the measures are “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 bought Sumisho Osaka Gas Water UK, including its subsidiary SES Water, in January for £380 million.

Today, Pennon Group is pleased to announce the purchase of SES water, a drinking water only supplier in the South East supplying 160m litres of clean water every day to 750k customers. https://t.co/mpJJPHXk6r pic.twitter.com/RoyDilLYYU

— pennongroup (@PennonGroup) January 10, 2024

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 decision marks a rare piece of positive news for Pennon, which, like other water firms, has been under the microscope in a scandal over sewage discharges in recent months.

Pennon has also been dealing with an outbreak of the cryptosporidium bug in the Brixham area, which affected 16,000 households and businesses from May 15.

Cryptosporidium is a waterborne disease which can cause unpleasant symptoms such as diarrhoea and vomiting.

Meanwhile, across the industry, 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.

In a stock market update, Pennon said it is “pleased that the proposed undertakings in relation to the separate reporting of SES Water’s costs and performance have now been accepted”.