Sainsbury's and Asda pledge £1bn price cuts in bid win CMA round to merger

The two sides have also claimed the watchdog made a series of errors in its wintry assessment of the deal's impact on competition 

James Moore
Chief Business Commentator
Tuesday 19 March 2019 18:00 GMT
Sainsbury's and Asda must win the support of the Competition & Markets Authority to get their deal through
Sainsbury's and Asda must win the support of the Competition & Markets Authority to get their deal through

Much of the world concluded that Asbury’s – the beast created by the merger of Sainsbury’s and Asda – was basically dead in the water after the Competition & Markets Authority took a very dim view of their proposed marriage.

The prospective partners have, however, sought to make it clear that they think otherwise.

In an announcement to the stock exchange they’ve pledged to deliver £1bn of price cuts with three years of the deal’s completion, good for 10 per cent off “everyday items”.

But wait, there’s more. There’s a promise to cap the profits from selling fuel and to submit to “independent” monitoring too. The price cuts will be paid for by an estimated £1.6bn in cost savings. So this isn’t going to be a fun place to work. And it isn’t going to be much fun for suppliers either.

Sainsbury’s and Asda have also released a document summarising what they describe as the "basic" and "substantive" errors in the CMA's provisional findings, which held that their merger would damage competition and choice and lead to higher prices.

The British do have a curious way of negotiating with people. They seem to think shouting and waving their fists will get the other side to say, crikey, I can see you’re pretty passionate about that so I must have jolly well got it wrong. Tell you what, I’ll take myself off and go and sit in the penitent’s corner until you’re ready for me to say I’m very sorry.

It rarely works out that way. Just look at where we've ended up at the hands of Theresa May and her merry band of incompetents over Brexit. I’m not sure it will do Asbury’s a lot of good with the CMA either, because the net result of this sort of sabre rattling is that it tends to get people’s backs up.

Of course, it could always be that Asda and Sainsbury's are well aware of that (their executives are a lot smarter than May and company) and that this is just an elaborate face saving exercise.

I wouldn’t rule it out. But if it isn’t, if they’re for real, I suppose the price offer is at least worthy of consideration. I would, however, be inclined to ask exactly what they mean by “everyday items”. There’s scope for a certain amount of game playing with that term.

I’m also told that the idea would be to have one of the big four accountancy firms monitoring Asbury's (although they'll never call it that) performance against its promises. I’m not sure that will go down very well with the CMA either. It’s chaired by Andrew Tyrie and he took a very dim view of those firms’ conduct when he was running the Treasury Committee.

Still, give the Asbury’s bosses some credit. They have at least managed to breathe a little life back into the story, even if the chances of their consummating this shotgun wedding of theirs haven't improved much.

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