(Reuters) - The UK's competition watchdog said on Friday it started an investigation into whether the potential merger of pub owner Stonegate and larger rival Ei Group, which would create Britain's biggest pub operator, would erode competition.
The Competition and Markets Authority (CMA) said it has begun its phase 1 investigation following the European Commission's decision to refer the case to the UK.
The move comes as the country's hospitality sector has been rocked by the closure of a number of major restaurant chains this year, while pub operators battle the cost of higher minimum wages as well as dampening consumer confidence due to uncertainties surrounding Brexit.
The CMA also said it was inviting comments as to whether the 1.27 billion pound merger would lead to lessening of competition in the UK, as the deal would result in Stonegate taking control of some 4,000 additional pubs.
Stonegate and Ei declined to comment on the CMA's decision to investigate their deal.
Stonegate, which is owned by private equity fund TDR, is best known for its Walkabout, Yates and Slug and Lettuce chains. In contrast, Ei runs a disparate range of pubs, often in partnership with landlords and small operators, who tailor their menus and entertainment to cater to local customers.
(Reporting by Yadarisa Shabong in Bengaluru; Editing by Bernard Orr)