Water titan Pennon is remaining tight-lipped on speculation it might buy Southern Water by using some of the £4.2billion it raised from selling its waste management arm.
Exeter-headquartered Pennon, parent firm of South West Water, ended up with £3.7billion in cash after offloading Viridor to private equity firm KKR and will have money to burn after paying down debt and bolstering its pension scheme.
There is now speculation that Pennon, the South West’s largest business, is looking to use some of that cash to snap up Southern Water, which covers Hampshire, Sussex, Kent and the Isle of Wight.
Pressed on the potential acquisition, a Pennon spokesman would only say a firm “no comment”. But it is understood shareholders have been told the company wants to use cash from the Viridor sale to fund a takeover.
And in September, new chief executive Susan Davy hinted at the possibility of acquiring more companies, following the successful lassoing of Bournemouth Water in 2015.
“We are looking for growth opportunities in the UK water sector,” she told Business Live. But when pressed on whether that did, indeed, mean more acquisitions, she would only say: “We are going to do what’s in the best interests of shareholders in terms of being efficient with the proceeds from Viridor.”
The sale of the recycling and waste disposal arm in July 2020, to investment firm Planets UK Bidco, a new vehicle set up by KKR funds, leaves Pennon with a surplus after shrinking its £900million debt pile.
In September, Ms Davy told Business Live: “We will be using the cash to make sure we have an efficient balance sheet. We will pay down £900million of our debt. We have paid off about £580million so far. And we will be putting £36million into the pension scheme.”
Pennon, a FTSE 100 company, is in a strong position. The utilities powerhouse sits at number one in the Western Morning News/PKF Francis Clark list of the South West’s 150 largest companies, with a pre-Covid turnover of £1.39billion and 4,853 employees.
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It has a five-year plan, which has been approved by industry watchdog Ofwat and includes big plans to invest in new technology and environmental improvements, and said it is on track to deliver “resilient” financial results in 2021.
Southern Water, however, has been beset with problems, including sewage leaks, a £126million fine in 2019, and criticism over a subsidiary in the Cayman Islands tax haven.
Southern Water provides essential water services to 2.6million customers, and wastewater services to more than 4.7million customers.
For the 2019/20 financial year it made an operating profit of £212.3million, down from £256.4 million in 2019, on turnover of £878million, which had increased by £2million.
The company was bought from the Royal Bank of Scotland for £4.2billion in 2007 by a consortium containing investment and pension funds and private equity, and includes JP Morgan Asset Management and UBS Asset Management.
