Poundland has been given permission to complete a £55m ($86m, €75m) takeover bid for rival budget retailer 99p Stores. The Competition and Markets Authority (CMA) ruled the deal, which would create a combined network of around 800 UK stores, would not mean customers will be "worse off", following a four-month review.
The CMA said that both stores are distinguishable from other retailers as they sell nearly all products at a single price point. A previous investigation found that a merger of the two stores could mean a reduction in quality, fewer promotions or the closure of stores.
However, after an independent group of CMA panel members conducted a survey of more than 5,000 people, it has been ruled that the £55m merger will not result in a substantial lessening of competition and consequently "customers would not face a reduction in choice, value or lower-quality service" as a result of the merger.
The CMA said after the stores combine, they will still have competition from other high street stores such as B&M, Home Bargains, Wilko and Bargain Buys, along with Tesco and Asda "to an extent". Poundland's shares rose 5.7% in response to the decision form the CMA.
Philip Marsden, chair of the inquiry group, said: "There has been a significant rise in prominence of value retailers for UK shoppers. Our evidence indicates that customers are primarily attracted to Poundland and 99p Stores because of their affordability and see them as good alternatives to each other. Nevertheless some customers can and do switch to other types of discount retail chains.
"We conducted our own customer survey and examined a large amount of data to understand whether, after the merger, customers would have enough alternatives both overall and in the local areas where there is currently a Poundland store and a 99p Store.
"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."
Jim McCarthy, chief executive of Poundland, added: "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 Stores will be great for customers and for shareholders alike."