LONDON (Reuters) - Poundland (L:PLND), Europe's largest single price discount retailer, will likely have to sell some stores to avoid its proposed takeover of smaller rival 99p Stores being referred for an in-depth investigation by British competition regulators.
Britain's Competition and Markets Authority (CMA) said on Thursday the 55 million pounds ($82 million) agreed deal could result in a substantial lessening of competition and would be subject to a further probe unless acceptable undertakings were offered. "The CMA is therefore considering whether to accept an undertaking....in lieu of a reference, it added.
Those undertakings, which have to be submitted to the CMA by April 16, would have to include the disposal of stores, analysts said.
In February, Poundland agreed a deal with 99p Stores' owners, the Lalani family, that would add 251 stores to Poundland's existing 534 UK stores. However, the deal was conditional on the approval of the CMA.
Shares in Poundland were down 2 percent at 356 pence at 1157 GMT, valuing the business at 881 million pounds.
The CMA's initial investigation found the proposed deal gave rise to a realistic prospect of a substantial lessening of competition in 80 local areas where Poundland and 99p Stores currently overlap and in a further 12 areas where they will be competitors in the near future.
The regulator also found that Poundland and 99p Stores are each other's closest competitors and that after the transaction they would only face close competition from one other single price retailer with national scale, Poundworld, and from other discounted retailers such as B&M (L:BMEB), Home Bargains, Wilko and Poundstretcher.
"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," said Sheldon Mills, CMA senior director of mergers.
"Given the potential impact on customers, we will now open a detailed investigation into this merger unless the parties offer suitable undertakings."
Poundland said it was considering the CMA's announcement, together with the full detail behind it and would make a further statement in due course.