Poundland faces competition probe
Poundland is facing an in-depth competition probe into its £55 million takeover of rival 99p Stores, which could see it having to sell off a clutch of outlets.
The planned merger, announced in February, would create a network of 800 shops.
But an initial investigation by the Competition and Markets Authority (CMA) found this could mean "substantial lessening of competition in 80 local areas where the companies overlap" and 12 where they would compete "in the near future".
The CMA has now told Poundland that it will refer the deal for a 24-week in-depth inquiry unless "acceptable undertakings" are made by next week.
It has not specified the undertakings but in previous similar cases this has meant selling stores.
Sheldon Mills, CMA senior director of mergers, said: "After the transaction, Poundland will 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."
The CMA found that after the takeover, Poundland would only face competition from one other single-price retailer with national scale, Poundworld, as well as from other discount retailers B&M, Home Bargains, Wilko and Poundstretcher.
It said "problematic areas" were those where it would face three or fewer rivals.
Poundland said: "Poundland is carefully considering the CMA's announcement, together with the full detail behind it and will make a further announcement in due course."
Shore Capital analyst Clive Black said should any remedies imposed over the takeover be "deemed penal" by Poundland's management the company could walk away from the deal to "do the right things for shareholders".
In the last similar case in the retail sector, scrutinised by the CMA's predecessor the Office of Fair Trading, Asda's takeover of Netto in 2010 was cleared after it agreed to dispose of 47 stores.
The previous year, the Co-op agreed to divest 133 outlets when it bought Somerfield.
Last year, two gym operators abandoned a £300 million merger after their proposed tie-up was stalled by an in-depth competition probe.
West Midlands based Poundland had 534 stores in the UK and 39 in Ireland at the end of 2014. It agreed the takeover of 99p Stores in February.
Family-run firm 99p Stores sold out 14 years after it was founded with a single store in north London by entrepreneur Nadir Lalani.
It has grown rapidly in recent years following the demise of Woolworths in 2008 as bargain retailers have become regular fixtures in UK high streets.
The chain now has 251 sites, trading as 99p Stores and Family Bargains, which serve more than two million customers.
Poundland opened its first store in Burton-on-Trent in 1990. It floated on the stock market last year.