Pennon bags Bristol in £425m deal

Pennon Group has acquired Bristol Water for £425m with assumed net debt of £389m taking the enterprise value of the water only company to £814m; a 44% premium on its regulatory capital value (RCV).

The deal will require clearance by the Competition and Markets Authority (CMA). Ofwat said it will “scrutinise the transaction carefully to ensure that customers’ interests are protected,”and will provide a formal opinion on the deal during the initial phase of the CMA review process.

Pennon has funded the deal with cash from its £4.2bn sale of its Viridor waste management arm last year which left it with a £2.7bn pot after a £1bn debt reduction. The balance will go to a £1.5bn return to shareholders through a special dividend of £3.55 a share and a £400m share buyback.

Pennon said it expected the acquisition to add about 16% to its RCV although investors are expected to ask for more detail to justify the premium paid for Bristol given its recent low return.

Pennon unveiled the Bristol deal alongside its results for the year to 31 March 2021 which showed a 14% fall in underlying group profit before tax to £157m on revenue up 1.2% to £644.6m. Growth in household demand under covid lockdown restrictions along with contract wins for its business retail operation, Pennon Water Services, outstripped the erosion of tariffs revenue under PR19 and the drop in non-household demand due to the pandemic.

Pennon’s South West Water business reported a £1.3% fall in underlying revenue to £563m with profit before tax down 5.4% to £164m.