Sainsbury’s and Asda have reacted angrily to competition watchdog’s findings that a proposed £12bn merger could push up supermarket prices and reduce choice.
The Competition and Markets Authority said it had found very significant concerns about how a tie-up between Asda and Sainsbury's would affect prices at supermarkets, online and in petrol stations.
Analysts said the deal had been dealt a “hammer blow” by the CMA while Sainsbury’s boss Mike Coupe accused the regulator of moving the goalposts.
Asda and Sainsbury’s
Asda and Sainsbury’s accused the CMA of “fundamentally” misunderstanding how people shop.
When the CMA first assessed the deal it had concerns over supermarkets in around 400 but this rose to 629 in the new findings despite the inclusion of Aldi and Lidl in its second assessment.
Aldi and Lidl have eaten up market share from the big supermarkets and now directly compete in some locations. The supermarkets had hoped that the rise of the discounters would help persuade the CMA that competition in the sector was strong.
Sainsbury’s chief executive Mike Coupe said the company was considering all options to keep the deal alive. That could potentially include legal proceedings against the CMA after the competition procedure finishes.
Moving the goalposts
The CMA has faced criticism before over what has been seen as a lenient approach but Sainsbury’s and Asda have accused the regulator of taking a more stringent approach than to previous mergers. Tesco’s 2016 tie-up with wholesaler Booker was waved through with no concerns, for example.
Tim Roache, GMB general secretary, said the CMA’s findings were “staggering” and called for the merger to be blocked as it puts thousands of jobs in doubt, he said.
“GMB Union will absolutely oppose any merger that would see hundreds of stores and scores of depots put at risk.”
“People are waking up today worried about what this means for them.
“What’s often lost in talk of share prices and ‘divestment packages’ is that this is also people’s lives, livelihoods and communities we’re talking about. The price shoppers and workers face paying for this merger is simply too high.
Many GMB members have worked at Asda for decades and will continue to support the company as a standalone business, Mr Roache said.
Richard Lim, chief executive of Retail Economics said the findings deliver a “hammer blow” to Sainsbury’s and Asda’s tie-up ambitions.
“Protecting the interests of consumers is paramount and the CMA chose not to mix its words with the second phase finding extensive competition concerns. The scope of any potential recommendations in the final stage may be too much to swallow for the deal to survive.
“There's no doubt that the industry is amid a painful readjustment. Competition in the industry is fiercer than ever before and at the heart of this proposed deal is the need to drive further efficiencies through scale.
Mr Lim said he expects “plentiful conversations” between retailers, wholesalers and large-scale logistics companies about how to achieve that efficiency.
Jordan Hiscott, chief Trader at ayondo markets said the future of the merger “now looks almost completely doomed” meaning Sainsbury’s will have to reassess its next move.
Private equity bids
The CMA’s warning could mean that Walmart’s plan to sell Asda and exit the UK groceries market is less likely to come to fruition, investment firm Jeffries said in a note.
Despite this, Jefferies said it believes Walmart still wants to sell Asda, and that the business will represent an “attractive target” for private equity firms.
“If we are correct, an alternative offer with no obvious regulatory concerns is likely to emerge quickly,” Jeffries said.
A sale to private equity would be positive for the wider UK grocery market, and particularly Morrisons which has stores in many of the same areas as Asda.
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