Water sector analysts continue to speculate about the possibilities of consolidation of companies and changes of ownership. Ofwat’s chairman commented earlier this year on possible restructuring, calling for dynamic and differentiated approaches to merger and acquisition activity during AMP6. He has also made reference to a more fragmented sector, stating that the logic of vertical integration no longer applies.
With business retail reform moving towards market opening in April 2017, and companies having the option (when implemented) to seek consent for business retail exit, it is clear that separation and possibly consolidation of non-domestic retail businesses may find favour with different investor groups looking not for the asset-rich, steady returns of the wholesale businesses but for the different prospects offered by retail specialists.
Changes to the sector’s merger regime to be introduced under Water Act 2014 will allow the CMA in certain circumstances to exercise discretion not to conduct a merger enquiry, and in situations where a merger enquiry would otherwise be required may accept undertakings from the parties concerned to take such action as the CMA considers appropriate.
In the interim, Pennon has set the ball rolling with its acquisition of Bournemouth Water, albeit the 2014 changes are not yet in force and an automatic referral to the CMA will therefore be triggered. At the same time Citigroup has announced its intention to sell its £32bn stake in Yorkshire Water. Who next?