Poundland faces further scrutiny into 99p Stores takeover plan

The deal could be in breach of competition rules

Poundland said it would review the decision before making a formal response (PA)

Poundland’s £55m takeover of rival 99p Stores has taken a knock after officials warned that the deal could be in breach of competition rules.

The Competition and Markets Authority said a more in-depth investigation into the deal taking several months must now take place, after finding 80 locations and 12 future sites would create a “substantial lessening of competition”. However, industry sources have criticised the decision, warning that the CMA has taken a far too narrow view on what could be considered Poundland’s competition.

Sheldon Mills, the CMA’s senior director of mergers, said: “After the transaction, Poundland will no longer face competition from its closest rival, and following our initial investigation, it is unclear whether the constraint posed by remaining retailers is sufficiently strong to mitigate our concerns over how the transaction might affect choice, value and service for shoppers.”

But one source told The Independent: “They have clearly taken a narrow view on Poundland and its competitors. It sells books, so you could argue it competes with the likes of Waterstones. It also sells tools, so could arguably compete with DIY stores. It also sells food, so is directly competing with supermarkets and convenience stores. To base the decision purely on the fact it sells everything at a single price point seems wrong.”

The CMA said: “Poundland and 99p compete closely and can be distinguished from other value general merchandisers since they sell nearly all products at a single price point. After the transaction they will only face close competition from one other single price retailer with national scale, Poundworld, and from other discounted retailers such as B&M, Home Bargains, Wilko and Poundstretcher.”

Poundland said it would review the decision before making a formal response, which it must do within one week, however, its chief executive, Jim McCarthy, has previously said he believes there should not be a competition issue.

In February, Mr McCarthy said: “If you look at Tesco and Sainsbury’s, they already have very high density of expresses and locals. You think ‘crikey there are a lot of those’, but they seem to pick up different customers.”

He plans on shutting some stores, but also insisted he would be keen to see more than one Poundland shop on some high streets.

Analysts were also sceptical on the CMA’s decision but suggested it should not impact the company’s share price – although some investors took flight, sending shares down 4.5 per cent, or 16.4p, to 344.6p.

Clive Black, a retail analyst at Shore Capital, said: “The broad thrust of the announcement and Poundland’s response was expected by us, albeit the extent of the overlap seems high. We are perplexed and somewhat staggered that the CMA believes that a company would buy a competitor in an extremely challenging market and deteriorate the customer experience.”