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The UK Competition and Markets Authority (CMA) has flagged potential regulatory issues with the £89 million acquisition of Sumisho Osaka Gas Water UK Ltd. by Pennon Group. Announced on Friday, this development marks a significant step in a deal that could reshape the landscape of water utility regulation in the region.

Initial Findings Raise Concerns

During its preliminary review, the CMA expressed concerns that the acquisition, involving two major water providers in southeast and southwest England, might compromise the Water Services Regulation Authority's (Ofwat) oversight capabilities. According to the CMA, integrating Sumisho, now operating as Sutton and East Surrey Group Holdings Ltd., into Pennon could hinder Ofwat's ability to benchmark and regulate water companies effectively. This transaction, if allowed to proceed without modifications, would remove a crucial player from Ofwat’s analytical dataset used for setting cost allowances and service quality benchmarks. Such a reduction in competitive comparison could lead to less stringent price controls, the watchdog fears.

UK Cites Regulatory Fears Over Utility's £89M Water Biz Buy: A Deeper Investigation Awaits

The deal is now poised for a more thorough Phase Two investigation by the CMA, unless Pennon and Sumisho propose acceptable remedies by May 13. These remedies will undergo a consultation with Ofwat to ensure they address the raised concerns adequately.