Poundland‘s anticipated acquisition of 99p Stores, which would create a combined network of around 800 UK stores, has been provisionally cleared by the Competition and Markets Authority (CMA). The deal is valued at around £55m.
After the CMA referred the proposed takeover for an in-depth phase 2 investigation in April, the watchdog initially concluded that the merger between the two discount retailers would not be expected to result in a substantial lessening of competition. As such customers would not face a reduction in choice, value or lower-quality service as a result of the merger.
The second phase of the investigation found that a merger would still face rivalry from other value retailers such as B&M, Home Bargains, Wilko and Bargain Buys, along with Tesco and to an extent Asda.
The inquiry group found that as a result of the deal, there will only be a small overall increase in the proportion of areas in which Poundland faces no competitors and, at a national level, only a third of Poundland‘s stores face competition from 99p.
CMA panel members examining proposal commissioned an independent face-to-face survey of over 5,000 customers of both retailers and examined their internal documents and other commercial data.
Philip Marsden, Chair of the inquiry group, said: “There has been a significant rise in prominence of value retailers for UK shoppers. Our evidence indicates that customers are primarily attracted to Poundland and 99p because of their affordability and see them as good alternatives to each other. Nevertheless some customers can and do switch to other types of discount retail chains.
We have also seen in recent years the Big Four supermarkets engaging in intense price competition, some of which involving the promotion of £1 products. On the basis of the evidence to date, we do not think customers will be worse off from the merger.”
Poundland Chief Executive Jim McCarthy added: “We welcome the CMA‘s provisional clearance of our acquisition of 99p Stores and we look forward to a satisfactory conclusion to its ‘Phase 2‘ review. We continue to believe that the acquisition of 99p will be great for customers and for shareholders alike.”
The proposed transaction includes 99p Stores‘ network of 251, which serve more than 2m customers a week, as well as its warehouse and distribution centre.
The CMA will publish its final report in mid-October ahead of the statutory deadline for the acquisition on October 23.