Poundland’s bid for 99p Stores under threat

Revealing its preliminary decision yesterday (April 9), the CMA said an initial probe had shown: “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.”​

Network of about 800 stores​

Poundland and 99p Stores have a combined network of about 800 stores located throughout the UK. Both supply general merchandise at a single price point, ranging from fast moving consumer goods, to stationery, homeware, gardening and seasonal merchandise, noted the CMA.

Both stores also competed closely and can be distinguished from other retailers because they sell nearly all products at a single price point.

CMA senior director of mergers Sheldon Mills said after the deal, Poundland would no longer face competition from its closest rival. “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,”​ he said.

“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.​

‘Unless the parties offer suitable undertakings’​​

“Given the potential impact on customers, we will now open a detailed investigation into this merger unless the parties offer suitable undertakings.”​

The merged business will face close competition from only one other single price retailer with national scale, Poundworld, said the CMA. But other discounted retailers – such as B&M, Home Bargains, Wilko and Poundstretcher – would also offer some competition, it added.

The discount retailer responded in a statement: “Poundland is carefully considering the CMA's announcement, together with the full detail behind it and will make a further announcement in due course.”​

Billed by City analyst Shore Capital as ‘Woolworths with food’, Poundland announced its £55M plan to buy is 1p cheaper competitor on February 6 for £55M, subject to CMA approval.

Poundland is due to post a trading statement for the fourth-quarter of its 2015 financial year on Tuesday April 14.

Read why Shore Capital believed Poundland could “walk away”​ from the 99p Stores deal here​.