Poundland faces probe into 99p Stores takeover plan

Poundland is facing an in-depth investigation into its planned acquisition of rival 99p Stores unless it provides acceptable remedies to the competition regulator's concerns over the effect of the merger on consumer choice.

The discount retailer signed a deal to buy its rival for an enterprise value of £55m back in February, claiming it would provide 99p shoppers with better choice, value and service.

However, the Competition and Markets Authority said on Thursday it was concerned that the merger would reduce competition in the market, particularly in the 80 local areas where the two companies have competing stores and 12 areas where they would be future competitors.

"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 and the decision maker in this case.

The discount retailer, which serves 5m customers a week, has until April 16 to provide the CMA with sufficient material that assuages these concerns, else it will begin the so-called "phase 2" investigation.

Poundland, which floated in March last year, gave no indication of how it plans to respond. It said in a statement that it is "carefully considering" the regulator's announcement and would make a further comment in due course.

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Poundland has opened about 600 stores since 1990 in the UK, Ireland and Spain and plans to launch 60 shops annually over the next two years in the UK and Ireland.

The CMA is concerned that the merged company would compete closely with just one single-price retailer that operates on a national scale - Poundworld. Other discounter rivals would include B & M, which is chaired by former Tesco chief executive Sir Terry Leahy, Home Bargains, Wilko and Poundstretcher.

"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," the CMA said.

A "phase 2" probe can take about six months, although it depends on the complexity of the merger and the sector. It involves information gathering and third-party hearings before provisional findings and possible remedies are outlined, if they are needed. The investigation is made public.

Poundland's shares dropped 2.2 per cent to 352.9p.

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