Poundland's acquisition of (more) budget rival 99p Stores has been given the provisional go-ahead by the competition watchdog, sending the listed company's share price soaring.
The Competition and Markets Authority this morning said the merger “may not be expected to result in a substantial lessening of competition”.
It said: "Along with Poundworld, the companies are each other’s closest competitors but after the merger they will still face competition from other value retailers such as B&M, Home Bargains, Wilko and Bargain Buys, along with Tesco and to an extent Asda.
"Poundland would not have an incentive to reduce the quality of its offering, either at the local or at the national level," the CMA added. "Currently each of Poundland and 99p sets the same retail offer at each of its stores across the country. The group does not believe that Poundland would have a greater incentive to vary its retail offer locally as a result of the merger as there will only be a small overall increase in the proportion of areas in which Poundland faces no competitors.
"At a national level Poundland competes with a number of retailers across the local areas in which it operates and only a third of Poundland’s stores face competition from 99p. In addition, many value retailers have ambitious expansion plans."
Poundland's share price was up more than six per cent in early trading.
The deal, announced in February, comprised £47.5m in cash as well as the issue of £7.5m-worth of Poundland shares. It will still be subject to further consultation, ending 16 September, and a full review of the deal will be published in October.
Poundland's chief executive Jim McCarthy said: “We welcome the CMA's provisional clearance of our acquisition of 99p Stores and we look forward to a satisfactory conclusion to its Phase 2 review. We continue to believe that the acquisition of 99p will be great for customers and for shareholders alike."
Shore Capital analyst Darren Shirley said the deal would “materially accelerate Poundland’s growth in Southern England and retail parks”.
“Poundland will both consolidate its leading position in the discount market whilst potentially easing some pressure on future site acquisitions,” he added.
“We expect the provisional clearance to be taken very well in volatile markets.”