Poundland's £55 million acquisition of rival 99p Stores has provisionally been given the green light.
The merger has been under investigation by the Competition and Markets Authority (CMA) since April amid concerns it would substantially reduce competition in the market.
But the inquiry group of independent panel members today stated that "customers would not face a reduction in choice, value or lower-quality service as a result of the merger".
It added that the new group, which would boast a network of 800 shops, would still face competition from the likes of Poundworld, B&M, Wilko, Tesco and Asda.
As such, it has provisionally concluded the merger would not reduce competition. Shares were up by more than five per cent in early trading following the announcement.
Poundland chief executive Jim McCarthy claimed the move will benefit both customers and shareholders.
"We welcome the CMA's provisional clearance of our acquisition of 99p Stores," he said.
"We continue to believe that the acquisition of 99p will be great for customers and for shareholders alike."
CMA inquiry group chair Philip Marsden said customers would not be "worse off" from the merger.
He added: "We conducted our own customer survey and examined a large amount of data to understand whether, after the merger, customers would have enough alternatives both overall and in the local areas where there is currently a Poundland store and a 99p Store.
"Both across its business and in individual areas, Poundland would continue to face competition from other value retailers so we don't currently believe customers will face a reduction in choice, value or lower-quality service as a result of the merger.
"We have also seen in recent years the Big Four supermarkets engaging in intense price competition, some of which involving the promotion of £1 products. On the basis of the evidence to date, we do not think customers will be worse off from the merger."
Anyone wishing to respond to the provisional findings should do so in writing, by no later than 5pm on September 16.
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