The news prompted London Clubs to lapse its offer of 47 shares for every 100 in Capital and sent shares in the latter down 14p to 186p. London's shares slipped 7p to 401.5p.
Success for London Clubs would have given it at least 60 per cent of the capital's pounds 1.7bn upmarket gambling industry, adding Crockfords and the Colony Club to the seven clubs it already owns, including the exclusive Ritz and Les Ambassadeurs venues. Mr Taylor said he had made his decision in the light of advice given by the Office of Fair Trading, but observers also suggested that with ministers' minds distracted by campaigning he had decided it was easier to let the MMC decide the issue.
Greg Feehely, leisure analyst with Kleinwort Benson, said: "I can't think of a good reason why it should be referred to the MMC. This is not something which would harm the UK consumer. There is no pricing issue involved here." As the clubs are private and a large proportion of the clientele from abroad, he argued that there is no reason for the UK authorities to become involved.
"The UK consumer or casino-goer is not going to be worse off by this going through ... and you're not really talking about the London market but 60 per cent of the international high-roller market."
London Clubs said its board would now meet to discuss its next move in the light of the decision. Alan Goodenough, chief executive, said: "Naturally, we are disappointed by the recommendation of the director general of fair trading. We believe that the arguments which we submitted to the OFT provided sound evidence that there were no adverse competition issues."
The decision was seen as a victory for Capital Corporation. Alan Hearn, Mr Goodenough's opposite number at the group, said the referral would allow management "to focus on developing further the group's valuable business, without the distraction and expense of an hostile bid. I welcome the opportunity to demonstrate to shareholders the significant value we can create as an independent company."
He said that they had plugged the gaps caused by departure of 11 out of the group's 30 administrative staff, revealed recently. "It's business as usual", he said.
Mr Hearn said he was not privy to the reasons for the referral, but he said he expected them to relate to market share, the increased barriers to entry caused by consolidation in the industry and the potential restriction on choice. He said the gaming industry "generated a lot of income for this country and London in particular". Anything which made it less attractive to foreigners could reduce that income, he suggested.
Julian Easthope, an analyst at Union Bank of Switzerland, compared the present referral with the similar circumstances of Pleasurama's bid for Trident Television in 1984.
That proposed takeover, which would have given Pleasurama two-thirds of the London casino market, was blocked by the MMC. The monopolies regulator justified that decision on grounds including the restriction on choice for gamblers "blackballed" at any one location.