The Competition and Markets Authority (CMA) has asked the two companies to propose answers to its concerns that pubgoers could face price hikes and lower-quality products after a takeover.
The watchdog said it would clear the acquisition if these “local concerns” were overcome because the takeover did not raise national competition concerns.
The merged business would still face competition at a national level from several other large pub groups, the watchdog confirmed.
Its concerns relate to 51 areas across the UK where the watchdog said it was worried “pubgoers in those areas could be faced with price increases or lower-quality products and services.”
The two companies must make suggestions to the authority before 13 December, with speculation this could mean a disposal of pubs.
The £1.27bn deal was initially investigated by the CMA as a standard practice and it is not expected that the deal will be given a second referral for another investigation.
The deal is expected to be completed in the first quarter of 2020 and would see Stonegate acquire an additional 4,000 pubs. It will become the largest pub company in the country.
Stonegate’s chief executive Simon Longbottom told The Morning Advertiser the group’s estate was complementary to its current operations of 700 sites.
He said: “We like the asset base, in truth, the pub base. There’s a southern and city centre bias to it and I think we can add a lot of value to those pubs.”