CMA clears merger of Bournemouth Water with South West Water

05th November 2015

The Competition and Markets Authority (CMA) today unconditionally cleared the acquisition by Exeter-based Pennon Group Plc of Bournemouth Water and the subsequent merger of Bournemouth Water with South West Water.

Following an extensive review, the CMA stated that the merger is not likely to prejudice the ability of Ofwat, the industry's economic regulator, to compare water companies' performance and set price controls.

Pennon acquired Bournemouth Water in April from Singapore-based Sembcorp Holdings Ltd for £100.3million.

Bournemouth Water is a water-only company providing high-quality drinking water to a population of 440,000 in Dorset, Hampshire and part of Wiltshire.   South West Water provides water and waste water services to a population of 1.7 million in Devon, Cornwall and parts of Somerset and Dorset.

The integration of Bournemouth Water with South West Water will lead to the consolidation of retail services and development of wholesale operations.  The two companies have been exploring ways to share best practice and support services in order to deliver a better and more efficient service to customers. 

The merger is expected to conclude by April 2016 with the operational integration substantially completed by the end of 2016/17.

Chris Loughlin, Pennon Group Board Director and Chief Executive of South West Water, said:  "We're delighted to get the go-ahead to bring two good water companies together.  Bournemouth Water is a well-respected, high-performing company and an excellent cultural and operational fit with South West Water.  We strongly believe that the merger will deliver long-term benefits for both customers and shareholders."

Bob Taylor, Managing Director of Bournemouth Water, said:  "We welcome today's announcement and look forward to the opportunities being part of the Pennon Group will bring." 

Although no conditions were attached to the CMA approval, South West Water will:

• improve services and reduce bills for customers in both service areas as a result of the merger
• continue separately to report the regulatory performance of South West Water and Bournemouth Water until at least 2020
• ensure that the separate 2015-20 business plans of South West Water and Bournemouth Water continue to be delivered separately
• retain the Bournemouth Water name and brand
• ensure the merger delivers greater innovation and enhanced customer service, through the sharing of best practice

In its current five-year business plan, South West Water will spend more than £1billion to maintain and improve services whilst delivering a Price Promise to peg average household bills below inflation to the end of the decade.  For the past three years the average South West Water domestic bill has either been reduced or frozen, and is now at its lowest level for eight years.

NOTE TO EDITORS

SOUTH WEST WATER BOARD CUSTOMER PLEDGES

The Board of South West Water has made the following public pledges:

• We will ensure that South West Water and Bournemouth Water customers will not be worse off as a result of the merger with the impact of merger specific savings reducing South West Water and Bournemouth Water customer bills through existing regulatory mechanisms
• We will continue to engage with customers to ensure the benefits to customers resulting from the merger are transparent and demonstrable - progress and delivery against our pledges in respect of the merger will be published and scrutinised at the independent Customer Challenge Groups of South West Water and Bournemouth Water
• Through the sharing of best practice we will ensure the merger delivers greater innovation and an optimised customer service offering
• We will return the small company premium on the cost of finance, reducing customer bills for Bournemouth Water by £1 from April 2016
• We will apply the transparent South West Water WaterShare principles to Bournemouth Water
• We will maintain tariff differential between South West Water and Bournemouth Water.
   

SOUTH WEST WATER BOARD OFWAT PLEDGES

In addition we believe it would also be appropriate to make additional commitments to Ofwat as follows:

• We will continue to report separately the regulatory performance of South West Water and Bournemouth Water at least until 2020
• After merging the two companies' licences, we will set up a new retail non-household business offering more service choice to non-household customers - this will be legally separated for market opening
• We will continue discussions with Ofwat to update our licence in respect of the current suite of ring-fencing conditions and adopt the new 'modular' licence as soon as practically possible
• We will use the merger to help facilitate further upstream market reform.

Published: 05 November 2015