THE £725 million takeover by Greene King of rival Spirit Pub Company has been threatened will an “in-depth investigation” by the regulator if the groups fail to allay its competition concerns on the mega-deal.
The Competition & Markets Authority (CMA) said yesterday that its initial probe into the merger of two of the pub sector’s giants found that 1,000 Spirit pubs overlap with a Greene King outlet in the UK.
In the vast majority of these cases, the watchdog said it had no concerns “given the many alternative pubs offering similar eating and drinking options”.
But the regulator added: “However, in a small number of areas, the CMA found that the parties’ pubs were in close proximity, were each other’s key rivals and did not face sufficient competition from other outlets, meaning that the loss of that competition may lead to an increase in prices or a deterioration in the quality of the offering.
“As such, the CMA, at this first phase, has found that the transaction gives rise to a realistic prospect of a substantial lessening of competition in 16 local areas.”
The CMA added that, as a result, the proposed tie-up would be referred to an in-depth phase 2 investigation “unless Greene King and Spirit offer acceptable undertakings to address the CMA’s competition concerns in a clearcut manner”.
Greene King runs 1,900 pubs, restaurants and a small number of hotels in the UK, including brands such as Flame Grill, Hungry Horse, Old English Inns and Loch Fyne Seafood & Grill. Its Scottish pubs include Doctors and Milnes in Edinburgh, and Cairns bar in Glasgow.
Spirit Pub Company, the managed pub business spun out of Punch Taverns in 2011, has about 1,200 pubs across the UK, with its brands including Chef & Brewer, Fayre & Square, Golden Oak Inns, John Barras and Taylor Walker.
Sheldon Mills, the CMA’s senior director of mergers and decision-maker in the Greene King/Spirit case, said: “Overall, we did not find major concerns with this transaction, given that most of the parties’ pubs face local competition from national pub chains or independent rivals.
“In a small number of areas, we found that after the merger the parties would operate pubs in close proximity without facing sufficient competition from rivals and we are concerned this could lead to a rise in the price of food or drink or a reduction in the quality of those pubs.”
Mills added: “Greene King and Spirit now have the opportunity to resolve these concerns by offering appropriate undertakings.”
Greene King, headed by chief executive is Rooney Anand, said yesterday that it was co-operating with the regulator and intended to offer acceptable undertakings to address its competition concerns.
City drinks analysts said they doubted the deal would be derailed, given the local nature of the CMA’s concerns and Greene King’s willingness to address them. One analyst said: “It is probably a slight surprise for Greene King and Spirit, but nothing that will rattle them deeply, probably through the most obvious route of selling some pubs to new competitors.”
Greene King has until Monday to offer undertakings to the CMA, and the regulator has until 26 May to consider whether they are likely to be acceptable. There will then be a further period of consultation with the firms before a final decision is made.
Shares in Greene King dipped 12.5p to 804.5p yesterday, with Spirit down 1.2p at 111.7p.