The Competition and Markets Authority (CMA) is investigating the completed acquisition by Castle Water Holdings Ltd of Invicta Water Ltd and whether the transaction has resulted in the creation of a merger situation under the provisions of the Enterprise Act 2002.

The CMA is considering whether this has resulted, or may be expected to result, in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services. The CMA has served an initial enforcement order on both companies stating:

“The Competition and Markets Authority has reasonable grounds for suspecting that it is or may be the case that arrangements are in progress or in contemplation which, if carried into effect, will result in Castle Water Holdings Limited and Invicta Water Limited (Invicta) ceasing to be distinct.”

The Order does not however prohibit the completion of the transaction provided that Castle Water and Castle Water Holdings observe a number of specific restrictions.

Except with the prior written consent of the CMA, Castle Water and Castle Water Holdings will not be allowed to take any action during the specified period which might:

• lead to the integration of the Invicta business with the Castle Water Holdings business;
• transfer the ownership or control of the Castle Water Holdings business or the Invicta business or any of their subsidiaries;
• or otherwise impair the ability of the Invicta business or the Castle Water Holdings business to compete independently in any of the markets affected by the transaction.

Both companies have also had to sign a Compliance Order under which they must confirm, among other things, that:

• the Invicta business is carried on separately from the Castle Water Holdings business and the Invicta business’s separate sales or brand identity is maintained;
• the Invicta business and the Castle Water Holdings business are each maintained as a going concern and sufficient resources are made available for the development of the Invicta business and the Castle Water Holdings business, on the basis of their respective pre-merger business plans
• there is no integration of the information technology of the Invicta or Castle Water Holdings businesses, and the software and hardware platforms of the Invicta business shall remain essentially unchanged, except for routine changes and maintenance;
• the customer and supplier lists of the two businesses shall be operated and updated separately and any negotiations with any existing or potential customers and suppliers in relation to the Invicta business will be carried out by the Invicta business alone
• for the avoidance of doubt the Castle Water Holdings business will not negotiate on behalf of the Invicta business (and vice versa) or enter into any joint agreements with the Invicta business (and vice versa);
• no changes are made to key staff of the Invicta business or Castle Water Holdings business;
• no key staff are transferred between the Invicta business and the Castle Water Holdings business;
• none of the assets of the Invicta business or the Castle Water Holdings business have been disposed of; and
• no interest in the assets of the Invicta business or the Castle Water Holdings business has been created or disposed of.

Except as permitted by the Order, no business secrets, know-how, commercially-sensitive information, intellectual property or any other information of a confidential or proprietary nature relating to either of the two businesses, has passed, directly or indirectly, between employees, directors, agents or affiliates

The deadline for the CMA to announce its decision whether to refer the Merger for a Phase 2 investigation is 19 September 2018.