The Competition Commission (CC) has published an issues statement as part of its inquiry into the completed acquisition of Cambridge Water PLC by South Staffordshire Plc.

On 3 October 2011, South Staffordshire Plc, the holding company of South Staffordshire Water PLC (SST), acquired the entire share capital of Cambridge Water PLC (CAM) from HSBC Bank plc. The completed merger was referred by the Office of Fair Trading to the Competition Commission (the CC) on 5 January 2012.

The CC has been asked by the Office of Fair Trading (OFT) to decide whether the merger may be expected to prejudice the ability of the Water Services Regulation Authority (Ofwat) to make comparisons between water enterprises when carrying out its statutory functions.

The OFT has a duty to refer mergers involving water companies to the CC if it believes that both the target and the acquiring water company have a turnover of more than £10 million each. In the regulatory year to end March 2011, the turnover from regulated activities of SST was £84.5 million and the turnover from regulated activities of CAM was £20.1 million.

The CC last looked at a water merger in 2006/07 when it investigated a merger between Mid Kent Water and South East Water.

The CC’s initial view is that there are three ways in which the merger could prejudice Ofwat’s ability to make comparisons between different water enterprises (the theories of adverse impact):

(a) it could have an adverse impact on Ofwat’s ability to use comparisons when setting price limits;

(b) it could have an adverse impact on Ofwat’s ability to use comparisons to monitor and incentivize performance and regulatory compliance; and

(c) it could have an adverse impact on Ofwat’s ability to use comparisons to identify and spread best practice.

The issues statement follows the initial process of gathering information, views and evidence and identifies clearly for all interested parties the specific questions and areas the inquiry is examining. This will form the basis for hearings with the merging parties and other interested parties.

The Commission said that the issues statement should not be seen as implying that the Inquiry Group had identified any particular concerns—the CC has yet to reach any conclusions on the inquiry.

The CC would like to hear views on the issues statement from all interested parties, in writing, by 20 February 2012. It is then expected to publish its final report by 20 June 2012.