Based on the two companies’ accounts, the joint venture would have had sales of £940.2 million, gross assets of £200 million and profit before tax of £9.7 million for the year ended 31 March 2015.
The chief executive of the joint venture will be Sue Amies-King, currently business retail director at UU, and the chief financial officer will be Stuart Howell, currently head of finance and business planning, business services at Severn Trent. The new management team of the JV are currently working on the creation of a new brand.
Severn Trent will pay £3.5 million on completion of the transaction in order to create a 50/50 JV and will share the cost of systems development. It will use the customer relationship management system (CRM) that UU has developed.
After completion, the new business will have an estimated 25 per cent market share across England and Scotland. Severn Trent and UU will account for the JV, through share of profits of joint ventures, using equity accounting.
The JV will also offer value added services to the combined customer base, such as water efficiency advice and combating leakage on customers’ sites, although “long cycle” services, such as the construction and operation of assets, will remain the responsibility of UU and Severn Trent individually.
Discussions between UU and Severn Trent were first held last year. The agreement is subject to clearance from the Competition and Markets Authority, which Severn Trent and UU expect to obtain in the spring.
UU chief executive Steve Mogford said: “This JV is a logical step to provide a strong platform in the new competitive market. By creating an exciting new standalone company, we will be well place in the English and Scottish competitive markets.
“Our view is that scale is a benefit to address overall cost base and therefore competitiveness. With Severn Trent, we found an organisation that’s clearly likeminded in seeking the market opportunity.
“The JV will combine the complementary skills and capabilities of UU and Severn Trent to improve our competitive offering for customers, increase efficiency and enhance value for shareholders.”
Severn Trent chief executive Liv Garfield added: “I am delighted to be working with UU in creating this JV. The introduction of competition into the non-household retail market presents us with an exciting opportunity to combine our expertise for the benefit of customers and shareholders.
“The JV will provide non-household customers with an excellent retail choice as, together, we deliver a market leading offer and great service for customers across England and Scotland.”
An Ofwat spokesperson said: “The CMA will lead on judging the impacts of this merger on competition. We will support the CMA where required. Our priority will be to make sure customers are protected.
“More broadly, we welcome the fact that companies are readying themselves for the opening of the market, with 1.2 million businesses and other organisation able to choose their supplier of retail water services from April 2017.”