Despite getting off to a flying start, Wessex Water and Severn Trent
both fell at the regulatory hurdles, says Rory Chisholm, director of GJW
The Government decision to block both the rival bids for South West
Water took everyone by suprise. Like a sort of OK Corral in reverse, the
one left standing as the gun-smoke cleared turned out to be the weedy
and unpopular South West Water, as the tough guys from Wessex and Severn
Trent hit the dirt. What went wrong?
Both bidders got off to a good start, with the press accepting claims
that they could improve on South West’s hitherto dismal performance.
However this, and the success of other utility bids, seems to have made
them complacent, underestimating how different water is from other
utilities both in regulatory and political terms.
Putting the interests of the City, the press or politicians first can be
counter-productive with the regulators. The strategy of both bidders
seems to have been confused here. Claims that the Government wanted the
bids to succeed, far from inhibiting the regulator, seem instead to have
made him determined to assert his independence by taking a tough line.
Reports stressing the bidders’ unwillingness to be pushed into large-
scale price cuts, backed up by threats to walk away, may have impressed
the City and politicians, but also fed the MMC’s belief that neither
bidder could afford the price cuts required to outweigh the loss of a
comparator. Last minute press speculation only irritated the DTI, thus
disproving the myth that predicting a clearance somehow makes it more
Lobbying on mergers is restricted by procedural limitations, but both
bidders did well, persuading most (although not all) local MPs that a
regional company’s independence was not worth fighting for. Briefings
were well-organised - if undermined in Wessex’s case by a reluctance to
be specific in terms of benefits to constituents.
Yet ultimately such briefings counted for little against the MMC. This
shows how mistaken it is for bidders to keep their PR/lobbying and legal
advisers apart. Insiders on both teams complain they were not informed
how things were going with the MMC - and were therefore unaware of the
effort needed to convince Ian Lang.
South West’s team emerges best, doing well to organise political, and
even consumer, support. As one MP says: ‘The threat of takeover has done
wonders for South West’s performance. I just hope they keep it up.’