A consumer backlash against the £96.4m takeover of the Ottakar’s book chain forced the deal to be referred for a full-scale competition inquiry today.
The Office of Fair Trading (OFT) revealed that it had been deluged with complaints from consumers and the book industry since the acquisition by Waterstone’s owner HMV was first agreed in September.
An investigation by the OFT found that customers could suffer if Waterstone’s and Ottakar’s were no longer rivals in the same town.
The OFT pointed out that the two chains competed closely in areas other than price – such as the range and quality of books and service quality.
John Fingleton, chief executive of the OFT, said: “Our economic analysis shows that Ottakar’s competes harder on non-price factors when a Waterstone’s is nearby.”
The OFT said it had received an “unusually high level of consumer complaints” that the benefits of competition would be eliminated by a combination of the two chains.
It wanted the Competition Commission to scrutinise these concerns more closely, with a final report on the proposed takeover expected by May 22.
HMV responded to the OFT decision by announcing that its offer would now lapse, but added that it still wanted to talk to the Competition Commission to explain why a takeover was possible.
Chief executive Alan Giles said: “The OFT’s statement today is very disappointing as we believe our offer would have resulted in an enhanced proposition to customers and greater sales of books, with no substantial lessening in competition.”
A combined business of Ottakar’s and Waterstone’s would have operated 325 stores in the UK and 1.9 million square feet of trading space.
HMV based its case that a takeover deal would not lessen competition significantly by citing industry data that gave the combined group a 23.6% share of the book market.
It also claimed that a deal will enable Waterstone’s to meet the challenge from supermarkets or online retailers such as Amazon that are not saddled with rents for high street shops.
The Society of Authors, which has 7,500 members, welcomed today’s decision after making its opposition to the takeover of Ottakar’s known to the OFT.
Mark Le Fanu, general secretary of the society, said: “I think Waterstone’s was perhaps rather surprised by the extent of the concerns and hostility to the takeover by publishers, authors and other booksellers.”
The society was against a deal because a combination of Ottakar’s and Waterstone’s would account for more than 50% of all books sold on the UK high street.
The view in the industry was that Ottakar’s played a more active role than Waterstone’s in promoting local and niche literature, hosting readings and supporting book festivals.
At the same time, Waterstone’s would be in a stronger position to wring discounts from publishers and this would have an impact on authors’ royalties.
Shares in Ottakar’s fell sharply on the news – down more than 15% to value the company at £76.3m.
References: EGi News 06/12/05
