Heineken's proposed £403m acquisition of Punch Taverns could reduce competition in 33 local areas across Great Britain.
That's according to the Competition and Markets Authority (CMA), which has looked in detail at areas where pubs operated by the two companies currently compete.
The CMA said there were 33 local areas where the pubs would not face sufficient competition after the merger, which could lead to price increases or a deterioration in the quality of the service on offer.
The CMA also looked at concerns that the merger would close off an important route to market for brewers that compete with Heineken. However, the CMA found that the pubs being acquired are only a very small part (4%) of the market in Great Britain and are therefore not a major route to market for brewers.
Meanwhile, the CMA also examined whether the acquisition by Heineken could lead to a reduction in the choice of beer and cider on offer in the Punch pubs.
It found that any potential reduction would be limited, taking into account the drinks that Punch currently stocks and the range of drinks available in Heineken-owned pubs. It also found that Heineken would not have a strong incentive to reduce the range of beer and cider, in part because doing so would risk losing business in pubs where this is important to customers.
Andrea Coscelli, CMA acting chief executive and decision maker in the case, said: "We have listened very carefully to a range of concerns about this merger. The companies will own less than 10% of all British pubs after any deal, but we are concerned about the loss of competition for pub goers in a number of local areas. Without sufficient competition from rivals, pubs in these areas might be able to raise prices or worsen the service they offer customers.
"Heineken will now have the chance to offer proposals to address these concerns - otherwise we will carry out an in-depth investigation."
The merger will be referred for an in-depth phase two investigation by an independent group of CMA panel members, unless Heineken is able to offer undertakings which sufficiently address the CMA's competition concerns. Heineken has until 20 June 2017 to do so.
In a response to the CMA's findings, Heineken said it was confident it would be able to offer acceptable undertakings, enabling the transaction to be approved without a phase two referral.
David Forde, managing director for Heineken UK said: "We welcome this positive step towards completing our acquisition of Punch A. This decision by the CMA acknowledges that there are only a small number of local areas where competition may be diminished due to our acquisition of the pubs in Punch A. We are confident we can offer the CMA suitable undertakings to satisfy their concerns."
Punch Taverns also said it was confident that proposals it was putting forward to address the points the CMA had raised would enable the transaction to be approved without a phase two referral.
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