Sutton and East Surrey Water - Acquisition update

Today, the Competition and Markets Authority ("CMA") published the outcome of its Phase 1 merger review following Pennon's acquisition of Sumisho Osaka Gas Water UK Limited ("SOGWUK"), the holding company of Sutton and East Surrey Water ("SES Water") and certain other ancillary businesses, which was announced on 10 January 2024.

During this phase of its review, the CMA has been considering whether there is a realistic prospect that the acquisition of SES Water by Pennon is likely to prejudice Ofwat's ability to make comparisons between water companies, such that a referral for a Phase 2 review may be warranted. Throughout this process we have worked transparently and collaboratively with both Ofwat and the CMA to support and expedite their review and will continue to do so. In the interests of procedural efficiency, and based on its experience of previous merger reviews, Pennon has accepted that the threshold for referral may be met in this case. The CMA has accordingly confirmed today that it will refer the transaction for a Phase 2 review unless acceptable undertakings in lieu of a reference are offered.

Pennon intends to offer appropriate undertakings to the CMA by 13 May 2024. As with the Group's acquisition of Bristol Water, the 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 as a regulator, and ensure that the benefits of the acquisition are shared among the Group's stakeholders.

In line with the CMA's guidance, the CMA will then consider whether to provisionally accept the proposed undertakings. Should those undertakings be provisionally accepted, in line with standard procedure, the CMA would then launch a consultation on those proposals.

Susan Davy, Group CEO, commented:

"We are encouraged by this positive and expedient step forward in the acquisition process. It is important to us that this deal receives the appropriate level of scrutiny so that all of our stakeholders feel reassured of the benefits of the acquisition and have trust in the outcome.

"While the undertakings have not yet been agreed, we have been through this process before with our acquisition of Bristol Water and are confident that we will be able to offer a compelling package of undertakings that will fully address the CMA and Ofwat's concerns, and ensure that the benefits of the acquisition for all customers and stakeholders are delivered."

Pennon's acquisition of 100% of the issued capital of Sumisho Osaka Gas Water UK Limited, the holding company of SES Water completed on 10 January 2024 and, in line with standard procedure, is subject to CMA review under the Water Industry Act 1991.