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Water deal triggers cost cutting decision

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DIRECTORS OF the two private investment funds that bought South East Water last year were meeting this week to discuss the the Competition Commission report into the acquistion.

Earlier this month the Competition Commission ruled that Mid Kent Water's owners could buy South East Water.

The deal was referred to the commission by the Ofce of Fair Trading last November.

Water-only provider Mid Kent Water is owned by two private investment vehicles Hastings Diversi Utilities Fund (HDUF) and the Utilities Trust of Australia (UTA).

The two funds purchased South East from the Macquarie European Investment Fund.

They are preparing to merger the two water companies.

Water regulator Ofwat had feared that the merger would damage competition in the industry.

'We identied four different ways in which the merger might adversely impact Ofwat's ability to make comparisons between water enterprises in carrying out its functions under the Water Industries Act, ' said the Competition Commission report.

These include the loss of a company which is used as a benchmark in Ofwat's econometric models, reducing the precision of the econometric models, reduction of Ofwat's ability to challenge cost estimates and reduction of its ability to make qualitative comparisions between companies.

Overall, the Commission has ordered the two companies to share a £4M rebate among their customers in 2008/09.

It has also ordered the newly merged m to cut costs by £3.1M between 2010 and 2015.

It is understood that these will be discussed by the Kent and South East directors this week.

The Competition Commission decision led to a urry of Stock Market activity but industry insiders said they did not expect see a trend for new mergers or acquisitions.

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