By Daniel Hunter
The anticipated acquisition by Poundland of 99p Stores will be referred for an in-depth investigation by the Competition & Markets Authority (CMA), unless acceptable undertakings are offered.
If the proposed deal goes ahead, there will only be one other singe price competitor; Poundworld.
An initial report said that it is unclear how a merged Poundland and 99p Stores would continue to offer the same level of competition.
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. The transaction will therefore be referred for an in-depth phase 2 investigation by an independent group of CMA panel members unless the parties offer acceptable undertakings to address the CMA’s competition concerns in a clear-cut manner.
Sheldon Mills, CMA Senior Director of Mergers and decision maker on the case, 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."