The merger of two of the UK's biggest casino operators suffered a setback today after being referred for a full competition inquiry.
The planned £205 million acquisition of 23 Gala Coral sites by Mecca Bingo owner Rank would see it leapfrog Malaysian firm Genting as the UK's biggest player, giving Rank's Grosvenor casino division 57 sites.
But the Office of Fair Trading (OFT) is worried that the merger will reduce competition at a national level and in nine local areas and has referred the deal to the Competition Commission for further consideration, despite Rank's offer to divest of casinos in seven locations.
The OFT said a reduction in competition to just two large national operators may result in a worse deal for consumers.
It said there were high barriers to entry and expansion in the sector, limiting the ability of other players to replace the loss of competition.
OFT senior director Ali Nikpay said: "Rank and Gala are two of only three large national casino operators in the UK.
"The high barriers to entry and expansion in the casino sector mean the loss of competition could potentially be irreversible.
"As such, we believe it is appropriate that the Competition Commission reviews this merger in detail to ensure that the interests of consumers are protected."
The Competition Commission is expected to report by February 3 and has the power to block the deal altogether.
Rank said last week that it hoped to complete the tie-up by the end of September.
All but a handful of Rank's casinos are outside London, with the company focused on the faster roll-out of its G Casino format, which attracts a younger, less formal crowd. The Rank business employs more than 3,500 people.
The deal will allow Grosvenor Casino to expand into 11 new cities, while allowing Gala Coral to concentrate on its Gala bingo and Coral bookmaking divisions as well as strengthen its finances.
Rank is listed on the London Stock Exchange but majority owned by Guoco, the investment vehicle of Malaysian billionaire Quek Leng Chan.
The business also has more than 100 bingo clubs under the Mecca brand and owns the Bluesq sports betting and gaming business.
Rank agreed to pay an initial £182.5 million for the Gala casinos with the rest paid in stages until 2015 when certain conditions are met.
The deal also includes three non-operating licences but excludes the Gala casinos in Dundee and Gibraltar and the non-operating licence for Westminster.