The issues have been highlighted in a new paper published today on WaterBriefing by Graeme Young, Partner in the EU and Competition team of national law firm Dundas & Wilson.

Water Mergers says that the CC inquiry provides a useful frame of reference as to the potential trade-offs that merging water companies might have to make in order to get future transactions approved. The paper highlights potential problems with the approach taken by Ofwat outlined in its initial submission to the Commission on the deal.

Graeme Young says it will be interesting to see whether the CC is prepared to consider the need for a remedy along the lines being sought by Ofwat. If there is to be any detailed consideration of remedies, the CC will need to be careful not to be seen to be encouraging a policy that might look like the introduction of some form of "merger tax" on a lost comparator.

Looking longer term and at the proposed reforms to the special regime for water mergers in December’s Water White Paper, Water Mergers says Defra will need to consider what the statutory test will be – whether it will be a 'loss of comparators' test similar to the current test, or whether it will be a test closer to the standard 'substantial lessening of competition' test.

The decision could have a critical bearing on the prospects of water companies and investors being able to offer up 'undertakings in lieu' of a detailed investigation for future water mergers.