Following an initial investigation, the Competition and Markets Authority (CMA) has found that the transaction gives rise to a realistic prospect of a substantial lessening of competition in 80 local areas where the companies currently overlap – and in a further 12 areas where they will be competitors in the near future.
The CMA found that the parties are each other’s closest competitors and that after the transaction they will only face close competition from one other single price retailer with national scale, Poundworld, and from other discounted retailers such as B&M, Home Bargains, Wilko and Poundstretcher.
In the problematic areas, the parties will only be constrained by 3 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.
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 said: “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.”