UK watchdog threatens in-depth probe of Veolia’s takeover of Suez

The UK competition regulator has threatened to open an in-depth probe into the tie-up between Veolia and Suez, the world’s two largest waste and water companies, intensifying the pressure on one of the most fraught takeover battles in French history.

The Competition and Markets Authority said it would launch an investigation into the merger within five working days unless the companies offered suitable solutions to its concerns over the size and power of the combined group.

The companies have multiple waste management contracts with local authorities in the UK, prompting worries that the merged group could lead to higher prices because of the loss of competition.

Veolia said it was considering proposals to present to the British regulator, adding in a statement that it believed the deal would not affect prices for councils and industrial clients in the UK.

A person close to the discussions said Veolia could offer to sell some assets where there were overlaps, such as an incinerator that was close to another owned by its rival.

Paris-based Veolia struck the deal to buy arch-rival Suez in April, ending months of acrimony between the two companies and kick-starting a series of antitrust probes.

Veolia had hoped to resolve the competition issues by the end of the year but now faces probes in both London and Brussels that could extend the takeover saga well into 2022.

Veolia could still close its offer for Suez by the end of the year or in early 2022, even if British regulators went ahead with the probe, through an exemption that would require it to hold off on integrating the UK businesses, two people familiar with the matter said.

The CMA has received a large number of complaints from local authorities, which are concerned the merged entity would be the only company that could credibly service complex waste management contracts in the UK.

“Councils spend hundreds of millions of pounds on waste management services. Any loss of competition in this market could lead to higher prices for local authorities, leaving taxpayers to foot the bill,” said Andrea Coscelli, chief executive of the CMA.

The Paris-based group earned €2.1bn in the UK and Ireland last year on worldwide turnover of €26bn. Suez reported more than €17.2bn in global turnover, with about €900m generated in the UK.

The threat of a full-blown investigation by the British watchdog adds pressure to an already bitter deal. The two sides entered into a public dispute in August last year after Veolia bought 29.9 per cent of Suez, triggering a fightback from its smaller rival that threatened to sell off assets and put together an alternative offer. The bid turned fully hostile in February.

The pair ended up agreeing on an arrangement that involves large chunks of Suez’s business in France being spun out to keep them independent. Veolia had hoped this would resolve the competition issues.

Funds including infrastructure group Meridiam will be the shareholders of that new entity. It will be made up of water and waste operations in France as well as international assets, including in Italy, Africa and India.

Veolia’s main antitrust concerns are focused in France, where Veolia and Suez are historic competitors, and the companies are awaiting a decision from regulators in Brussels on whether to clear the deal, which is due next Tuesday, with concessions or extend the probe by an extra four months.

A longer probe by Brussels would be more problematic, pushing Veolia to reconsider its closing timeline, although there is no indication that will be the case. The company said it had 14 out of 18 antitrust clearances already.

The CMA is concerned the merger could affect industrial customers, which use the companies’ water management services as well as those that use their waste management services.

Coscelli said: “Everyone in the UK uses waste and recycling services in some way. It is therefore vital that this deal is subject to more detailed scrutiny if our concerns aren’t addressed.”

Additional reporting by Javier Espinoza

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