Poundland’s £55m takeover of discount rival 99p Stores is under threat after competition regulators said they want to examine the deal.
The Competition and Markets Authority warned the deal threatens the “choice, value and service for shoppers”.
It now plans to launch an in-depth investigation into the deal unless Poundland offers to make concessions, such as selling off stores, reports The Telegraph.
The CMA is the new government body formed from the Office of Fair Trading and the Competition Commission. The announcement that the CMA will launch a full investigation is a similar process to what used to happen when the OFT handed on a case to the Competition Commission.
In a statement, Poundland said: “Poundland is carefully considering the CMA’s announcement, together with the full detail behind it and will make a further announcement in due course.” Shares in the discount retailer fell 1pc on Thursday.
Poundland announced it had agreed a £55m deal to buy 99p Stores in February. Poundland has more than 600 stores while 99p Stores has 250.
The CMA said it has founded 80 local areas where the retailers are competitors and a further 12 where will they be in the near future due to store openings.
The regulator said: “The CMA found that the loss of competition between the companies may lead to a worsening of their offer locally, through a reduction in quality, fewer promotions or closure of their stores.”
Sheldon Mills, CMA senior director of mergers, said: “As consumers become ever-more price conscious, they value the low prices offered by these retailers and their shopping around for bargains is aided by the simplicity of their pricing.
“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.
“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.
“Given the potential impact on customers, we will now open a detailed investigation into this merger unless the parties offer suitable undertakings.”
The CMA said that Poundland and 99p Stores were each others closest rivals and the deal with result in their being only one other nationwide single-price retailer, Poundworld.
It said other discount rivals were B&M, Home Bargains, Wilko and Poundstretcher, but that in “problematic areas” the retailers “will only be constrained by three or less of their competitors and it is so far unclear whether they would provide the same level of competition that currently exists between Poundland and 99p Stores “.