Formal inquiry launched into proposed £15bn Asda merger with Sainsbury’s

A formal investigation is to be held in the proposed £15bn merger between Asda and Sainsbury’s.

The Competition and Markets Authority (CMA) has confirmed the proposed deal will be the subject of phase 1 probe looking into the likely impact on shoppers and suppliers.

MPs have already raised concerns about the implications of the merger of the Leeds based giant and its competitor Sainsbury’s.

Neil Parish, chair of the Environment, Food and Rural Affairs Committee, claimed suppliers could suffer from the pledge to cut 10% off the price of everyday items after the merges.

Asda and Sainsbury’s announced the £15bn merger plan in April.

The investigation will look into whether the merger is likely to lead to less choice for consumers, higher prices or poorer services.

The merger of Asda and Sainsbury’s would create a company with combined revenues of about £51bn.

Over the last four months the CMA has been gathering the information needed to start its formal investigation and has now confirmed it will begin Phase 1 of its detailed assessment into how the deal could affect competition for UK shoppers.

As well as being major retailers of groceries, both in-store and online, Sainsbury’s and Asda also compete to sell goods such as fuel, electricals, toys and clothing.

The CMA will also look at whether the merged company could use its increased buyer power to squeeze suppliers and whether this could have potential knock-on effects for shoppers – for example, through suppliers being less able to innovate or having to charge higher prices to stores that compete with the merged company.

Andrea Coscelli, chief executive of the CMA, said: “About £190bn  is spent each year on food and groceries in the UK so it’s vital to find out if the millions of people who shop in supermarkets could lose out as a result of this deal.

“We will carry out a thorough investigation to find out if this merger could lead to higher prices or a worse quality of service for shoppers and will not allow it to go ahead unless any concerns we find are fully dealt with.”

Sainsbury’s and Asda have asked the CMA to move more quickly to the in-depth part of the inquiry through a ‘fast-track’ process.

In most merger cases, a full Phase 1 investigation is needed to determine whether a deal can be cleared or whether further scrutiny is required.

However, merging companies can ask for the CMA’s review of the deal to be moved more quickly to Phase 2 where it is clear from an early stage that the deal requires an in-depth investigation.

Mark Jones, partner and head of food and drink at Yorkshire law firm Gordons, said: “There is a decent chance the CMA will let Asda and Sainsbury’s merge despite the concern that it will allow the larger combined business to squeeze suppliers for lower prices.

 “The issue for suppliers is less about the prospect of being ‘squeezed’ and more about the fact that a lot of suppliers offer the two businesses different prices. Some suppliers will be making more money off Sainsbury’s than they are Asda for instance.

 “But once the combined business sees the supplier prices for both Asda and Sainsbury’s, the prices will be aligned to the lower price. That is the issue suppliers are facing and it will, ultimately, mean the suppliers will make less money.”

Paddy Lillis – Usdaw General Secretary – said: “The CMA has an important role to play in ensuring that companies do not have excessive control of the market, but at present their decisions are wholly in the interests of consumers and business, not in the interests of workers.

“All too often the staff are the last consideration as businesses are bought, sold or restructured and that needs to change.

“There should be permanent trade union representation within the CMA’s internal structures and requirement to consult with the appropriate trade unions on the impact of mergers and takeovers.

“The CMA must also consider the socio-economic implications of store disposals on communities that rely heavily on retail.

“I have written to the CMA requesting that the best interests of workers in Sainsbury and Asda are fully represented and considered and that is best done through their trade union.”

The CMA is now inviting views by 31 August on how the merger could affect competition.