Online takeaway ordering firm Just Eat is to face a full-blown investigation from the competition watchdog into its proposed £200million takeover of rival Hungryhouse.
Just Eat and Hungryhouse are both takeaway ordering firms, working as middlemen between customers and restaurants by taking orders online and then taking responsibility for delivering the food.
The Competition and Markets Authority (CMA) said its initial probe into the acquisition found the two firms were close competitors because of the service they offer and their reach across the UK.
The CMA has until November 2 to make a final decision on the takeover.
On demand: Online takeaway ordering firm Just Eat is to face a full-blown investigation into its proposed £240m takeover of rival Hungryhouse
Today the watchdog said that the merger could lead to worse terms for restaurants using either company due to diminished competition, adding that the deal will now undergo an in-depth merger investigation after Just Eat failed to address its concerns.
This is despite Just Eat and Hungryhouse arguing that they would not wield too much power over the market because competition had been bolstered by a series of new entrants such as Deliveroo, Amazon Restaurants and UberEATS.
But the CMA rejected the claim, saying these companies had a different operating model and therefore could not be considered direct rivals.
London-based Just Eat announced its takeover of Hungryhouse last December, agreeing to pay £200million to Delivery Hero for Hungryhouse.
It will also fork out another £40million, depending on performance.
The CMA said: ‘Both companies provide online takeaway ordering services. These give restaurants the opportunity to reach a wide pool of people, as well as offer customers the convenience of choosing from a large range of takeaway providers in one place.
‘Following its initial investigation into the merger, the CMA has found that the companies are close competitors because of the similarity of their service and their broad geographical coverage.’
Pedal power: Just Eat and Hungryhouse argued that they would not wield too much power over the market because competition had been bolstered by new entrants such as Deliveroo
The takeover deal is part of Just Eat’s acquisition spree, with the group also announcing the C$110million (£66.1million) acquisition of Canadian firm SkipTheDishes.
However Just Eat has undergone a big management upheaval, announcing last month that executive chairman John Hughes had to take a medical leave of absence just a month after chief executive David Buttress stood down because of ‘urgent family matters’ with former chief financial officer Phil Harrison stepping in as interim chief executive.
The company said this month that sales rose 46 per cent to £118.9m in the three months to March 31.
Last month, the company kept its guidance for full-year revenues unchanged at between £480million and £495million, and underlying earnings of between £157million and £163million.
Shares in Just Eat fell by 5.5 per cent in early morning trading today on concerns that the firm’s order growth in the UK is slowing.
In the UK, orders rose by just 17 per cent to 24million in the first three months of 2017, the lowest rate of annual growth since the company went public in 2014.