The competition watchdog has provisionally cleared Poundland’s £55m takeover of its rival single-price retailer, 99p Stores, arguing that there are enough value chains vying for customers to allow the deal.
The Competition and Markets Authority said its four-month review of the proposed deal had found that competition would not be damaged if Poundland were to buy 99p Stores to create an 800-store chain. Both retailers sell similar ranges of consumer goods, stationery, food and drink, and homeware.
The CMA said the two companies, along with Poundworld, were each other’s closest competitors but that the combined business would still experience strong competition from Wilko, B&M and other value retailers, as well as Tesco and Asda among the supermarkets.
As a result, customers would not be harmed by less choice or Poundland reducing the value of its offers, the CMA said. The CMA’s announcement is a victory for Poundland, which argued that the rise of value retailing in the UK, the expansion plans of its rivals and supermarkets matching some of its £1 offers meant it would continue to meet strong competition.
Poundland’s shares rose 5.7% to 349p in response to the CMA’s statement. Announcing its initial findings in April, the CMA said competition was in doubt in 80 places where their stores overlapped and in another 12 locations where shop openings would cause them to compete soon.
That raised the prospect of Poundland having to sell the overlapping stores to satisfy the regulator, which launched a “phase two” review to examine the implications of the deal in detail.
Philip Marsden, who chaired the CMA’s inquiry, said: “There has been a significant rise in prominence of value retailers for UK shoppers. Both across its business and in individual areas, Poundland would continue to face competition from other value retailers so we don’t currently believe customers will face a reduction in choice, value or lower-quality service as a result of the merger.
“We have also seen in recent years the big four supermarkets engaging in intense price competition, some of which involving the promotion of £1 products. On the basis of the evidence to date, we do not think customers will be worse off from the merger.”
Once it has final approval from the CMA, the acquisition of 99p Stores, announced in February, would add 250 extra shops to Poundland’s estate of nearly 600 UK outlets, accelerating its progress towards a target of 1,000 stores here. The company, which topped sales of £1bn this year, also has more than 40 Irish stores and nine in Spain under the Dealz brand.
Jim McCarthy, chief executive of Poundland, said: “We welcome the CMA’s provisional clearance of our acquisition of 99p Stores and we look forward to a satisfactory conclusion to its phase two review. We continue to believe that the acquisition of 99p will be great for customers and for shareholders alike.”
McCarthy plans to rebrand 99p Stores as Poundland, meaning regular shoppers at the acquired business will have to pay a penny more per item.
The CMA consulted Poundland, 99p Stores, other retailers and 5,000 customers for its review and also examined the two companies’ internal documents and data. Anyone wishing to respond to the CMA’s provisional findings has until 16 September to do so.
