The merger between South West Water and Bournemouth Water has been referred for an in-depth phase 2 investigation by the Competition and Markets Authority (CMA).

Currently the Authority has a duty under the Water Industry Act 1991 to refer mergers involving water companies for phase 2 investigation if it believes that both of the target and acquiring water companies have a UK turnover of more than £10 million. The CMA believes that the turnover thresholds are met in this case.

The transaction, which has already been completed, involves the acquisition by Pennon Group plc (the owner of South West Water Limited) of Bournemouth Water Investments Limited (which operates Bournemouth Water).

The CMA will investigate whether the merger has or may be expected to prejudice the ability of the Water Services Regulation Authority, Ofwat, to make comparisons between different water companies for the purpose of its regulatory functions such as price regulation. The CMA is expected to report by 20 November 2015.

All the CMA’s functions in phase 2 merger inquiries are performed by inquiry groups chosen from the CMA’s panel members.

The Water Act 2014 makes changes to the regime which will remove the CMA’s duty to automatically refer water mergers for phase 2 investigation – however, the relevant provisions are not yet in force. Once the new regime commences, water mergers will therefore include a phase 1 merger investigation to assess whether any concerns that the merger could prejudice Ofwat’s ability to carry out its regulatory functions merit a more in-depth investigation.