9th Apr 2015 12:02
LONDON (Alliance News) - The Competition and Markets Authority on Thursday said the merger between Poundland Group PLC and 99p Stores will be referred for an in-depth investigation unless acceptable concessions are offered by the two groups.
FTSE 250-listed Poundland agreed a GBP55 million cash and shares deal in February to buy its small - and slightly keener pricing - rival, paying GBP47.5 million in cash and a further GBP7.5 million in shares.
Poundland said at the time the deal will be conditional upon the approval of the UK competition regulator and said initial talks with the CMA indicated it might have to offer concessions to get the deal passed, owing to the size of the two companies.
That indication was confirmed Thursday, after the CMA said its initial probe found the merger "gives rise to a realistic prospect of a substantial lessening of competition" in 80 local areas in which the companies both have existing operations, plus a further 12 areas in which they will be competitors in the near future based on current store opening plans.
The CMA found the two are each others' closest competitors and that after the deal, they would only face significant competition from one other national operator, Poundworld, and from discount retailers such as B&M European Value Retail SA, Home Bargains, Wilko and Poundstretcher.
The competition watchdog said the loss of competition between the companies may result in a deterioration of their offer in a local level, through a reduction in quality, fewer promotions or closure of their stores.
As a result, the CMA is recommending the deal be referred for an in-depth phase two investigation by an independent group of CMA panel members, unless Poundland and 99p Stores table an acceptable set of undertakings to ease the concerns.
Poundland said it is "carefully considering" the CMA decision and will make a further announcement in due course.
"After the transaction, Poundland will no longer face competition from its closest rival, and following our initial investigation, it is unclear whether the constraint posed by remaining retailers is sufficiently strong to mitigate our concerns over how the transaction might affect choice, value and service for shoppers," said Sheldon Mills, senior director of mergers at the CMA.
"Without competition from 99p Stores, there is the possibility that Poundland may have the incentive and ability to deteriorate its offer in these areas to the disadvantage of customers that have come to rely on their offer," Mills added.
Poundland shares were down 1.0% to 357.29 pence Thursday early afternoon.
By Sam Unsted; [email protected]; @SamUAtAlliance
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