Watchdog backs HMV-Ottakar's takeover

WATERSTONE'S owner HMV looks set to be cleared to buy the Ottakar's chain, after the Competition Commission said the merger would have little impact on consumers.

A provisional decision released yesterday said a merger of the high street book stores would not lead to a substantial loss of competition in the retail book market anywhere in the UK.

The findings came after the Office of Fair Trading referred the proposed merger to the commission on 5 December, causing HMV's initial 96.4 million offer for Ottakar's to lapse. A preliminary Office of Fair Trading investigation found that customers could suffer under a merger.

HMV refused to comment on whether it was still interested in pursuing the deal yesterday. The City was confident, however, that another offer would be made, with Ottakar's shares rising by almost 8 per cent to close on 350.75p. HMV shares dropped marginally to 173.75p.

Inquiry chairman Diana Guy said the merger was unlikely to affect book prices, the range of titles offered or the quality of service. Competition from supermarkets and the internet meant the merged company would have little ability to raise prices.

"It would have every incentive to offer an extensive range of titles and high-quality service in its stores, as these features give the merging parties a competitive advantage over supermarkets and other non-specialist retailers," she said. The Commission found that where the stores were close together, the range of books and quality of service were similar to elsewhere. "The effect of competition between Waterstone's and Ottakar's at the local level seems limited," Guy said.

The merger has met a frosty reception from many groups. The Forum of Private Business said the decision showed "tunnel vision" and the merger would have a devastating impact on independent booksellers, publishers and the high street. FPB spokesman Gordon Frankland said the buying power of the combined group would enable them to dictate terms in the market. He said: "In some sectors, publishers will face a near-monopoly buyer ... It is naive in the extreme to think that the supposed benefits of the merger will be passed on to book-buyers."

Lorraine Fannin, director of the Scottish Publisher's Association, said the decision was disappointing, threatening to squeeze Scottish players out of the game.

Waterstone's operates 196 book stores throughout the UK. Ottakar's has 140, including 16 in Scotland.

A spokesman for HMV said that if the board decided to launch another bid it was unlikely to come before the Competition Commission's final decision is released on 22 May. HMV has itself been the target of a takeover bid recently. Private equity firm Permira Advisors dropped its 842m takeover bid on 20 March, but has not ruled out another offer.