Vivendi swallows Southern Water

Foreign ownership of the UK's water industry increased yesterday after Vivendi Environnement, the French utility giant, bought Southern Water for £2.05bn.

The deal will give Vivendi control of 10 per cent of the UK water industry and means that 10 UK water companies supplying 26 million households are now owned by overseas groups. Vivendi is buying Southern Water from First Aqua, the financial consortium which took over the business from ScottishPower two months ago.

The deal will be vetted by the European Commission and the UK's Competition Commission, which will conduct an automatic six-month inquiry because Vivendi already owns three other UK water companies – Three Valleys Water, Folkestone and Dover Water and Tendring One Hundred.

But Ofwat, the water regulator, gave its backing to the deal. Vivendi has agreed to create a new "comparator" company which will enable the regulator to continue to compare the performance of Southern Water with other water companies when setting price controls. "Ofwat has indicated that such a solution would be satisfactory and in its view would remedy any long term detriment to comparative competition," Vivendi said in a statement.

An Ofwat spokesman said that because its ability to compare Southern Water's performance would be unaffected, it was not pressing for cost-savings from the takeover to be passed on to customers in the form of cheaper bills.

The financial institutions and private equity investors behind First Aqua will make a tidy profit by selling the business on to Vivendi, profiting both from the fees charged to ScottishPower and the dividend they will extract from Southern Water before the Vivendi deal is complete in the fourth quarter of this year.