The OFT said the proposed takeover did not warrant referral to the Competition Commission since the deal would not "give rise to competition concerns at a national level". It said the combined market share of around eight per cent would create a "stronger" fifth player against the Big Four supermarkets.
Some of the Somerfield trading areas chosen for disposal do not necessarily have stores owned by the Group, but do have Co-ops owned by other societies. The OFT concluded that local societies are linked to the Group through the CRTG buying consortium and having two Co-ops owned by different societies in a local market poses competition issues.
A referral to the Competition Commission would have meant a lengthy consultation and to avoid this the OFT said it followed frameworks laid out by the Commission to interview 40,000 consumers in areas where a Co-op and Somerfield are present.
A spokesman for the OFT said: "The extensive evidence base available meant the OFT could safely conclude that the merger raised local competition concerns in 126 markets across the UK, while not raising concerns in any other local markets.
"The majority of problematic local areas affected by the merger arise because the Co-op and Somerfield compete closely against one another in the local area concerned."
The Group, which agreed to buy a total of 880 Somerfield branches, is now in discussions with other retailers to sell stores from the 126 local markets identified by the OFT. Most stores will be sold without any competition issues, however if some cannot the OFT will be asked to approve those sales. Once this is completed the OFT is expected to approve the deal.
Added the OFT spokesman: "The Co-op has offered a comprehensive divestment package to meet each of the OFT’s local competition concerns. While the OFT is satisfied that the majority of grocery stores included in this divestment package will be of interest to several eligible buyers, this would not necessarily be true for all stores. To manage the risk that there are no eligible buyers for some stores, the parties therefore agreed to find suitable buyers up-front for the OFT to approve, before it agrees to a finalised remedies package."
A spokesman for both companies said: “The Co-operative Group and Somerfield welcome the announcement by the Office of Fair Trading which, subject to us addressing a small number of local competition issues, clears the way for the creation of a stronger fifth player in the grocery market. This is good news for consumers and good for competition.”