John Taylor, corporate and consumer affairs minister, said the acquisition, which at a stroke turned Cowie into the UK's third-largest bus operator, raised competition concerns about bus services in Surrey and Kent and south London. The group has a leading market share in the capital. On the advice of the Office of Fair Trading, Mr Taylor has referred the issue to the MMC, with a brief to report back by 6 February.
This is not the first controversy to hit British Bus, whose former chairman, Dawson Williams, has been charged with corruption offences after a Serious Fraud Office investigation. But Cowie and analysts played down the significance of the reference yesterday and, after touching 338p, the shares regained some of their losses to end 6p down at 359p.
Although Cowie said at the time of the deal that a referral was "unlikely", company spokesman Robert Blower said they remained confident the MMC would not force the reversal of the whole acquisition. "That would be totally unnecessary and is not on the cards. The OFT are not thinking that way at all."
Mr Blower believed that the problems lay with Kentish Bus and London & Country, two British Bus subsidiaries which operate services into London. With Cowie's existing operations, this would give the combined group a 26 per cent market share in the capital, 1 percentage point more than the maximum normally allowed by competition authorities.
Mr Blower said rationalisation in Kentish Bus had already reduced the share to 25.4 per cent and there remained plenty of scope to reduce further by swapping or cutting routes. In all, the business at issue related to 1 or 2 per cent of the pounds 280m turnover of British Bus.
"We maintain that our services don't operate against the public interest, that there isn't a competition issue and when you look at 25.4 per cent, it is only a marginal issue and there is plenty of scope to rationalise our London operation."
One analyst said if there had been a major problem, the Government would have referred the acquisition before it was completed in August.
However, another said the news had come as "a bit of a blow". The company had neglected its new car sales side this year and this could put a question mark over the strategy of moving into buses, she said.