The Office of Fair Trading (OFT) announced it had referred the takeover by McGill's Bus Services of rival operator Arriva West last December – thought to be worth more than £10 million – to the market watchdog as it had created a monopoly on sections of some routes.
The deal, the latest in a series of takeovers, doubled the size of McGill's fleet to 320 buses and saw it gain a dominant position in the Renfrewshire area.
It is the first time the OFT has referred a bus company to the Competition Commission since a two-year inquiry into the local bus services by the commission concluded last December that a lack of competition was costing passengers across the UK up to £300m a year.
Its decision was welcomed by Paisley and Renfrewshire North MP Jim Sheridan, who referred the case to the OFT. "For a lot of people in my constituency there are no train stations and so no alternative to taking the bus. I hope this leads to greater competition being introduced in Renfrewshire," he said.
The move was attacked by McGill's, which said it would lead to higher fares for passengers due to the legal costs, expected to reach up to £500,000, for representing the company during the six-month investigation, which is due to conclude on October 2.
Ralph Roberts, the company's managing director, said that, had the merger not taken place, Arriva West, a company he previously worked for as MD until 2010, would have had to consider withdrawing services, putting up fares or even exiting the market entirely as it was "barely profitable".
Explaining the OFT's decision, Ali Nikpay, the senior director in the case, said: "Where local competition exists, the OFT will look carefully at mergers between rivals that have the potential to result in price rises or a reduction in journeys for passengers."