DEFRA indicated this week that it’s reluctant to remove hurdles to M&A, leaving the future of several water mergers looking uncertain.
The response to it’s consultation on whether to lift the threshold at which mergers are reported to the Office of Fair Trading was published by DEFRA. At the moment water companies with an annual turnover of £10M would have to report mergers to the OFT, although DEFRA was consulting on whether to lift the barrier to £70M as the Professor Martin Cave recommended in his 2009 review of the sector.
In a summary of responses to the consultation, DEFRA said “We are still not convinced that sufficient evidence currently exists to support an increase in the threshold… There also remains a degree of uncertainty as regards the future of comparative regulation with Ofwat proposing to move to a new regulatory model less dependent on comparators, and we therefore do not consider that now is an appropriate time to increase or abolish the £10m threshold.”
DEFRA will instead put measures in place to allow Ofwat to tell the OFT how the merger will effect on it’s ability, compared to water companies across the market.
This should simplify the process of merging by removing the need for further referral to the Competition Commission.