The Barclay brothers, the billionaire owners of the Ritz hotel and the Scotsman newspaper, suffered a setback yesterday after their £590m takeover of the GUS mail order business was referred to the Competition Commission.
Patricia Hewitt, Secretary of State for Trade and Industry, took the decision on the advice of the Office of Fair Trading, which concluded there was "a significant prospect of a substantial lessening of competition in mail order" if the deal was allowed to stand.
Should the Competition Commission take the same view, then the Barclay brothers, who already own Littlewoods mail order, would be forced into a fire sale of the home shopping business bought from GUS. The deal, completed in May, was not conditional on regulatory clearance.
David Simons, chairman of Littlewoods, acknowledged there had always been a risk of a referral after the competition authorities blocked a similar deal in 1997 involving the merger of Littlewoods and Freemans mail order. But he said Littlewoods was confident of persuading the Competition Commission of its case.
"The game has changed since 1997. Mail order has been in steep decline and it is no longer the only source of credit for people who can't get it elsewhere. It is pretty clear GUS would have closed the business had it not found a buyer and since then nobody has exactly been beating a path to out door to buy it."
The OFT concluded that with GUS under its belt, Littlewoods' share of the mail order market would be three times that of its nearest rival whilst Littlewoods would account for more than half the agency home shopping market, where customers pay for their goods in weekly instalments. The businesses bought from GUS had sales of £1.7bn last year.
Although there would be competition from conventional high street retailers, this would not be sufficient to prevent Littlewoods exploiting its position and raising prices.
But Littlewoods hopes to convince the Competition Commission that mail order should no longer be regarded as a separate market but part of the general non-food market where its share would be an "insignificant" 3 per cent.
The company also argues that the concept of "agency" home shopping, where local agents collect from neighbours along their street every week, no longer exists in any serious way. It says that 88 per cent of mail order customers buy direct for themselves whilst the increased availability of credit cards had made less well-off consumers much less dependent on mail order.
The Competition Commission has been given three months to carry out its investigation and reports by 23 December.