A £205m deal to create the UK’s biggest casino operator could be vetoed by the Competition Commission because of concerns about the effects of potential monopolies in five cities.

In May, Rank Group, which operates 35 UK casinos, announced a deal to acquire 23 more from its indebted rival Gala Coral, which would make Rank the largest casino operator in the country, overtaking Malaysia-based Genting, by number of venues.

But the Competition Commission has warned that the deal could be blocked if no solution is found for Gala’s casinos in Aberdeen, Liverpool, Stockton-on-Tees, Bristol and Cardiff, where customers face “a substantial lessening of competition” if the deal goes ahead.

In a provisional report the commission warned that the whole deal could be blocked if either the casinos are not excluded from the deal or if Gala can find no alternative buyers.

“We have found that casinos vary their offer in response to local competitive conditions and while there is limited scope to compete on price, casinos try to attract customers through customer service, promotions, events and the range of games available,” said Martin Cave, chairman of the commission’s Rank-Gala inquiry.

“Our concern is that with two of the national players merging, this will leave a number of areas with much reduced competition where casino customers could consequently lose out through a poorer casino offer.”

The commission’s concerns also include a licence, owned by Gala, which would allow Rank to build a casino in Edinburgh.

Nick Batram, an analyst at Peel Hunt, said that even without the five casinos the deal would still be worth it.

“Even without these casinos it’s still a significant deal – I believe both sides still want to do it,” he said. “The Competition Commission are laying out the route for a deal to be done.”

Rank, which is the largest bingo hall operator in the UK, has ambitions to broaden the appeal of UK casinos by moving them away from pure gambling to offer broader entertainment and dining.

The company, controlled by Malaysia’s Guoco Group, formally announced in January it was talking to Gala about the deal, funded by cash and debt, before both sides walked away. But talks resumed in May with analysts broadly supportive of the merger, saying there were clear synergies.

Gala is repositioning itself after its protracted debt restructuring deal in 2010, which has left it in the hands of a range of private equity shareholders.

Rank declined to comment. The Competition Commission said it was consulting with Rank and a decision would be made in February.

Last month Ian Burke, Rank’s chief executive, called for an end to the term “casino banking” to describe high-risk banking activities because it was tarnishing the reputation of the casino industry.

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