Poundland facing tough choices over 99p Store takeover

The Willenhall-based company, which has 575 stores in the UK and Ireland, has ambitions to grow to 1,000 stores and announced in February that it was to buy 99p Stores, which has 251 sites, in a £55 million deal.

But last week the Competition and Markets Authority said 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.

Poundland chief executive Jim McCarthy has expressed surprise and disappointment at the decision.

He says the company is considering its next step, but has not ruled out pulling out of the acquisition of 99p Stores, which has its head office in Northampton.

Poundland, which saw its shares drop nine per cent after the CMA announcement, was today issuing its latest trading figures for the final quarter of its financial year and the full year.

The company, which floated on the stock market in March last year, is expected to show increases of more than 10 per cent in sales and pre-tax profit for the year.

It has until Thursday to decide how to respond to the CMA which has said it has competition concerns about 92 of the 99p Stores, including 12 where Poundland is due to open nearby in the near future. These stores account for more than a third of 99p Stores.

Poundland must either agree to sell off the stores in question, contest the CMA decision through a phase two investigation that would last five months, or pull out of the takeover.

"Before our board and advisers can form an overall view, we really have to give some quality time to thinking it through. We have got a lot of business to do, a lot of opportunities. It is not as though we are short of opportunities," said Mr McCarthy.

Poundland is concerned that the CMA considered the deal on the basis that the retailer's rivals only main rival was Poundworld and its other competitors were B&M, Home Bargains, Wilko and Poundstretcher.

The retailer, which opened its first store in 1990, believes it competes against a wider selection of traders, including the major supermarket chains.

Mr McCarthy said the takeover of 99p Stores had offered the opportunity to reach its target of opening 1,000 stores quicker than initially expected.

Family-run firm 99p Stores was founded with a single store in north London by entrepreneur Nadir Lalani in 2001 and has grown rapidly in recent years following the demise of Woolworths. It trades as 99p Stores and Family Bargains.