The Competition and Markets Authority (CMA) has launched an investigation over Just Eat's proposed takeover of Hungry House, suggesting the deal could result in a worse deal for restaurants.
In December 2016, the online takeaway service reached a deal to acquire rival Hungry House from parent company Delivery Hero for £200m ($238m), plus a potential further £40m depending on the performance of Hungry House between December and the completion of the deal.
The acquisition would allow Just Eat to continue its growth plans relatively unfettered in the UK, which is the company's largest market, given Hungry House was its biggest rival in Britain.
However, the CMA said the merger could result in worse terms for restaurants using either of the two chains. It added that Deliveroo, UberEats and Amazon Restaurants represented less of a threat to the takeaway market, as they targeted a different kind of restaurant, mainly dine-in establishments that do not have their own delivery service.
"Following its initial investigation into the merger, the Competition and Markets Authority has found that the companies are close competitors because of the similarity of their service and their broad geographical coverage," the regulator said in a statement on Wednesday (10 May).
The CMA has told Just Eat it has until 17 May to provide a new proposal to allay the concerns, otherwise the regulator will launch an in-depth phase two investigation.
Just Eat, which launched in Britain 11 years ago, said it would cooperate with the request.
"Just Eat looks forward to cooperating with the CMA and is committed to demonstrating to the CMA that the market is, and will remain, competitive following completion of the proposed transaction," it said.
In March, the FTSE 250-listed group reported a 164% year-on-year increase in annual pre-tax profit to £91.3m, as orders across the business on a like-for-like basis rose by 36% compared to a year ago.
Alongside the deal for Hungry House, the company acquired Canada's sector peer SkipTheDishes for £66m in December and – during the year – it also bought businesses in Italy, Spain and Mexico.