He saw a lucrative market in small towns that lacked a Waterstones branch and opened stores in Loughborough, Brighton, Banbury, Salisbury and Trowbridge.

In August 2005, amid rumours of a forthcoming takeover attempt by HMV Group plc, the owners of Ottakar's (founders James Heneage and Philip Dunne backed by private equity firm Phoenix Equity Partners) made a management buyout offer which was initially accepted by Ottakar's independent directors, some of whom had only recently joined the company.

The Commission stated that the takeover would "not result in a substantial lessening of competition", and was "not likely to affect book prices, range of titles offered or quality of service."

Through extensive research they also found that "contrary to widespread perception, Waterstone's, like Ottakar's, operates a book-buying system which mixes central and local input on stock selection.

[4] HMV chief executive Alan Giles said in a statement: "A combined Waterstone's and Ottakar's business will create an exciting, quality bookseller, able to respond better to the increasingly competitive pressures of the retail market."

Ottakar's chairman Philip Dunne said: "Over the last year the book market has undergone a significant change with new levels of competition from the supermarkets and online retailers impacting all specialist booksellers and in particular those with insufficient scale to compete on equal terms.