Britain's Competition and Markets Authority (CMA) said it will probe Heineken's £403m takeover of pub operator Punch Taverns.

The Dutch brewing giant, alongside partner investment firm Patron Capital, agreed buy Punch's 3,350 strong portfolio of pubs in December last year. They argued the deal provided a "compelling strategic rationale" to enlarge its existing pub business.

Under the terms of the agreement Heineken will take control of 1,900 pubs of the 3,350-strong Punch estate. The Dutch brewer already owns 1,100 leased and tenanted UK pubs through its Star division.

The Punch deal would make the brewer the UK's third-largest pub group, after Greene King and Enterprise Inns.

In a short statement the UK regulator said: "The Competition and Markets Authority will assess whether the deal could reduce competition and choice for customers."

It added: "If it could reduce competition, the CMA would launch an in-depth merger investigation, which lasts up to 24 weeks, unless the merging parties offer undertakings which address any competition concerns identified."

The first phase of the investigation is scheduled to last until 24 April.

The Punch Tenant Network, which represents the UK firm's publicans, criticised the deal last month, saying it will reduce beer and cider options for customers.

The Dutch brewer typically stocks its existing pub estate to ensure Heineken-owned brands make up 85% of what is on offer. Its brands include Amstel, Strongbow, Sol, Red Stripe and Bulmers.

A Heineken spokesman said: "This morning's announcement confirms an important and fully expected stage in the process to finalise our acquisition of the Securitisation A pubs from Punch and Heineken will be fully cooperating with the CMA."

Earlier this week Heineken reported a hit to its annual profit due to volatility in global currency markets – partly thanks to the Brexit vote.

The brewer revealed its pre-tax profit dropped to £2.1bn compared with £2.4bn in 2015.

It said volatility in global currency markets – particularly the Mexican peso, the Nigerian naira and the British pound – had cost it about £976m, and the firm expects to be a further £30m out of pocket in 2017.