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Capita takeover faces monopoly investigation

Office of Fair Trading not convinced

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Capita's £78m takeover of IBS Opensystems Software has been referred to the Competition Commission.

The Office of Fair Trading said it was concerned the deal would be anti-competitive for local authorities. It said there were strong customer concerns around the deal because it would leave local councils and housing associations with only two effective competing suppliers for revenue and benefits software.

The statement said: "With the removal of IBS as an important rival, Capita would be likely to find it profitable to offer its own and/or IBS' products and services at less favourable terms in future."

The regulator reckons the market for benefit software is worth about £20m - if the market is worth less than £10m then the OFT rules state that any action would be disproportionate.

Capita argued that contracts up for renewal in 2008 meant the effective market was far smaller than this and therefore outside the OFT's usual "de minimis" requirements. The OFT revised its "de minimis" threshold last November from £400,000 to £10m.

But the OFT ruled against this and has passed the matter onto the Competition Commission.

The OFT recently cleared Northgate's takeover of Anite - in the same market.

Capita said it would "fully engage" with any investigation.

Earlier this week Capita said trading was in line with expectations and that it saw the credit crisis as a good opportunity to buy more firms. ®

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