The Competition and Markets Authority (CMA) has announced that it is investigating the completed acquisition by Pennon Group Plc of Sumisho Osaka Gas Water UK Ltd - including its subsidiaries Sutton and East Surrey Water Plc, Summit Water Ltd, and Osaka Gas UK Ltd under the Water Industry Act 1991.

The CMA has decided to investigate the transaction and has formally commenced its phase 1 investigation and served an initial enforcement order under section 72(2) of the Enterprise Act 2002 in relation to the completed acquisition.

The order places specific restrictions on the management of all of the respective businesses which prevent Pennon and Sumisho and its subsidiaries - the target business - from taking any action which might:

• lead to the integration of the target business with the Pennon business 
• transfer the ownership or control of the Pennon business or Sumisho or any of its subsidiaries;
• impair the ability of Sumisho or any of its subsidiaries the Pennon business to compete independently in any of the markets affected by the transaction.

In addition, all the businesses involved in the merger must at all times take all necessary steps to ensure that:

• the target business is carried on separately from the Pennon business and the target business’s separate sales or brand identity is maintained
• the target business and the Pennon business are maintained as a going concern and sufficient resources are made available for the development of the target business and the Pennon business, on the basis of their respective pre-merger business plans;
• the nature, description, range and quality of goods or services (or both) supplied in the UK by each of the two businesses are maintained and preserved;
• all of the assets of the target business and the Pennon business are maintained and preserved, including facilities and goodwill

The businesses must both ensure that no significant changes are made to the organisational structure or management responsibilities within the target business or the Pennon business, none of the assets of either business are disposed of and no interest in the assets of the target business or the Pennon business is created or disposed of.

 There must also be no integration of either businesses' information technology and the software and hardware platforms of the target business must remain essentially unchanged, except for routine changes and maintenance.

 The CMA has also stipulated that the customer and supplier lists of both businesses must be operated and updated separately. Any negotiations with any existing or potential customers and suppliers in relation to the target business must be carried out by the target business alone. For the avoidance of doubt, the CMA explains this means that the the Pennon business will not negotiate on behalf of the target business (and vice versa) or enter into any joint agreements with the target business (and vice versa). All contracts of the target business and the Pennon business must also continue to be serviced by the business to which they were awarded.

Other restrictions in place under the wide-ranging enforcement order include:

• no changes are made to key staff of either business;
• no key staff are transferred between either business;
• all reasonable steps are taken to encourage all key staff to remain with the target business and the Pennon business;
• 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 will pass, directly or indirectly between the businesses

Pennon and the target business are both required to actively keep the CMA informed of any material developments, including details of key staff who leave or join either business and any interruption that has prevented them from operating in the ordinary course of business for more than 24 hours.

They must also inform the CMA of all substantial customer volumes won or lost or substantial changes to the customer contracts, including any substantial changes in customers’ demand and any substantial changes in either business’s contractual arrangements or relationships with key suppliers.

Based on Pennon Group’s previous acquisition of Bristol Water in 2021, the acquisition could take between six to 12 months to gain regulatory approval from both the CMA and Ofwat.

The CMA is inviting interested stakeholders to send written representations about any competition issues to:

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