The Competition and Markets Authority (CMA) has published final guidance on its new approach for assessing water mergers.
The guidance has been produced because of changes to the special water merger regime in the Water Act 2014 which are expected to come into force later this year. It follows a consultation on the draft guidance which started in September and the final version incorporates changes made as a result of the responses received.
The Act removes the need for all water mergers to be automatically referred for an in-depth phase 2 investigation.
Currently, under the Water Industry Act 1991 the CMA has a duty to make an automatic reference to a phase 2 investigation if it believes that it is or may be the case that a merger of any 2 or more water enterprises has taken place, that the value of the turnover of the target water company exceeds £10 million; and that the acquiring firm already owns water companies that each has turnover exceeding £10 million.
Click here to download the CMA's final guidance.
The Act makes changes to the regime which will remove the CMA’s duty to automatically refer water mergers for phase 2 investigation.
It gives Ofwat a statutory role in phase 1 investigations and places the water merger review more in line with the general merger regime by giving the Authority the power to clear the merger at phase 1 – or to accept undertakings in lieu of a reference to a phase 2 investigation.
The CMA’s role in water mergers remains to assess whether the merger has a negative impact on Ofwat’s ability to make comparisons of costs and service standards between water companies.
The CMA said the guidance provides clarity to the industry, and other interested parties, on what procedures the CMA will follow and the approach it will take for its analysis under the new regime.
The CMA remains the sole decision maker in water merger cases but will work closely with Ofwat on such investigations and the working relationships between the 2 agencies is set out in the guidance and a statement of intent. Ofwat has also published more guidance on its role in a transaction, setting out its approach to mergers and statement of method in October 2015.
The Department for Environment, Food, and Rural Affairs expects to commence the changes to the special water merger regime in the Water Industry Act 1991 in November 2015.
The CMA and its predecessor bodies the Office of Fair Trading and the Competition Commission have examined 10 mergers between water companies since 1990. The CMA recently cleared the merger between Pennon, the owner of South West Water, and Bournemouth Water.
Click here to download Water and sewerage mergers: Guidance on the CMA's procedure and assessment
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