Poundland/99p Stores merger faces in-depth investigation unless suitable undertakings offered
The anticipated acquisition by Poundland plc of 99p Stores Limited will be referred for an in-depth investigation by the CMA – unless acceptable undertakings are offered.
Poundland and 99p stores are 2 large national discount retail chains with a combined network of around 800 stores located throughout the UK.
They both supply general merchandise at a single price point, ranging from stationery, homeware, gardening and seasonal merchandise to groceries and other fast moving consumer goods – meeting the needs of a wide range of customers who seek convenience and value at low and consistent prices. 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.
Following an initial investigation, the Competition and Markets Authority (CMA) has found that the transaction gives rise to a realistic prospect of a substantial lessening of competition in 80 local areas where the companies currently overlap – and in a further 12 areas where they will be competitors in the near future.
The CMA found that the parties are each other’s closest competitors and that 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.
In the problematic areas, the parties will only be constrained by 3 or less of their competitors and it is so far unclear whether they would provide the same level of competition that currently exists between Poundland and 99p.
The CMA found that the loss of competition between the companies may lead to a worsening of their offer locally, through a reduction in quality, fewer promotions or closure of their stores. The transaction will therefore be referred for an in-depth phase 2 investigation by an independent group of CMA panel members unless the parties offer acceptable undertakings to address the CMA’s competition concerns in a clear-cut manner.
Sheldon Mills, CMA Senior Director of Mergers and decision maker in this case, said:
As consumers become ever-more price conscious, they value the low prices offered by these retailers and their shopping around for bargains is aided by the simplicity of their pricing.
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.
Without competition from 99p Stores, there is the possibility that Poundland may have the incentive and ability to deteriorate its offer in these areas to the disadvantage of customers that have come to rely on their offer.
Given the potential impact on customers, we will now open a detailed investigation into this merger unless the parties offer suitable undertakings.
Notes for editors
- The CMA is the UK’s primary competition and consumer authority. It is an independent non-ministerial government department with responsibility for carrying out investigations into mergers, markets and the regulated industries and enforcing competition and consumer law. From 1 April 2014 it took over the functions of the Competition Commission and the competition and certain consumer functions of the Office of Fair Trading, as amended by the Enterprise and Regulatory Reform Act 2013.
- The Reference Test – under the Enterprise Act 2002 (the Act) the CMA has a duty to make a reference to phase 2 if the CMA believes that it is or may be the case that a relevant merger situation has been created, or arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a relevant merger situation; and the creation of that situation has resulted, or may be expected to result, in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services.
- Under the Act a relevant merger situation is created if 2 or more enterprises have ceased to be distinct enterprises; and the value of the turnover in the United Kingdom of the enterprise being taken over exceeds £70 million (‘the turnover test’) or as a result of the transaction, in relation to the supply of goods or services of any description, a 25% share of supply in the United Kingdom (or a substantial part thereof) is created or enhanced (‘the share of supply test’).
- The CMA’s duty to refer the merger for a phase 2 investigation under section 33(1) of the Act is not exercised whilst the CMA is considering whether to accept undertakings (if offered) in lieu of a reference. Poundland and 99p have until 16 April 2015 to offer an undertaking to the CMA that might be accepted by the CMA. If no undertaking is offered or accepted, then the CMA will refer the merger.
- All the CMA’s functions in phase 2 merger inquiries are performed by inquiry groups chosen from the CMA’s panel members. The appointed inquiry group are the decision makers on phase 2 inquiries.
- The CMA’s panel members come from a variety of backgrounds, including economics, law, accountancy and/or business. The membership of an inquiry group usually reflects a mix of expertise and experience (including industry experience).
- The full text of this decision will be placed on the case page as soon as is reasonably practicable.
- Enquiries should be directed to Siobhan Allen (siobhan.allen@cma.gsi.gov.uk, 020 3738 6798).
- For information on the CMA see our homepage, or follow us on Twitter @CMAgovuk, Flickr and LinkedIn. Sign up to our email alerts to receive updates on merger cases.