Details of South West Water’s merger with Bristol Water have been laid out after the former applied to Ofwat to vary its licence to include the water-only company, which was recently acquired by parent company Pennon Group.
Pennon added Bristol to the group in June 2021, increasing its water portfolio in the South West of England that also includes Bournemouth Water.
Ofwat will begin a consultation ahead of the business activities of South West and Bristol being unified into one licence.
As part of the merger, the majority of Bristol’s business will be transferred to South West’s licence, subject to approval by the regulator.
This will include Bristol’s £40 million of index-linked secure bonds due in 2041.
Following the transfer scheme, Bristol Water will retain certain irredeemable shares (8.75%) and debenture stock (15.75%) to ensure it will have sufficient funds and reserves to meet its future obligations related to preference shares and debenture stock.
The deal was cleared by the Competition and Markets Authority (CMA) in March despite initial concerns that the licence modifications could impede Ofwat’s ability to regulate.
The CMA had suggested the merger could undermine Ofwat’s ability to make comparisons between water suppliers and affect its capacity to regulate the sector. It requested further information and said it would otherwise need to undertake further reviews of the deal to ensure it would not impact competition in the market.
Pennon completed the acquisition after selling its waste management business Viridor in 2020 for £4.2 billion.
It paid £425 million for Bristol and was able to pay a special dividend of £1.5 billion to shareholders and buy back £400 million of shares.
Pennon has said it remains open to further mergers within the household or non-domestic water sector where it believes it could add value.