Watchdog ruling clears way for Ottakar's takeover

The competition watchdog today defied the literary fraternity by ruling that a takeover of book seller Ottakar's by HMV would not harm choice or quality.

The Competition Commission said it was provisionally giving a green light to the marriage in spite of appeals from the Society of Authors and the Publishers Association that consumers and the book industry would suffer.

Its four-month inquiry concluded that the competitive threat from supermarkets and online retailers such as Amazon would ensure that book prices would remain low.

A combination of Waterstone's, which is owned by HMV, and Ottakar's would have "every incentive" to offer a full range of titles and service in its stores in order to give itself an edge over its rivals, the Commission said.

Diana Guy, chairman of the inquiry group, said: "In the few locations where Waterstone's and Ottakar's stores are close together, we found the range of books and quality of service were similar to their stores located in other areas.

"So the effect of competition between Waterstone's and Ottakar's at the local level seems limited."

HMV agreed a £96.4 million takeover with independent directors of Ottakar's last year, following a bidding war, but this offer lapsed after the Office of Fair Trading referred the deal for a full competition inquiry.

Analysts believe the current sharp declines in sales being experienced by high street book retailers mean that HMV is likely to lower its bid if it still wants to pursue a deal, possibly by as much as a third.

Ms Guy said there was a widespread perception that the decisions on which books to put on the shelves of Waterstone's were taken too often at its head office - at the expense of store managers who were in tune with local demand.

However, the investigation found that this was not the case and Waterstone's operated a similar book-buying system to Ottakar's, mixing central and local input on stock selection.

"Although the merger may reduce the number of central buying decision-makers, we do not believe this will have a significant impact on the range and variety of titles available to readers," Ms Guy said.

Despite the transformation in the industry brought about the abolition of the Net Book Agreement, which had allowed publishers to set minimum prices for their works, the inquiry team noted that sales have continued to grow.

"We do not see any reason why the merger would change this or reduce the number of titles published," said Ms Guy.

Ottakar's noted the provisional ruling and said it was awaiting the publication of the final report of the Commission, which is due by 22 May.

In its response, HMV said: "The company is now considering the full text of the Competition Commission's provisional conclusions and will continue to work closely with the Commission."