£7bn Asda-Sainsbury’s merger blocked

The Competition and Markets Authority has quashed hopes of a merger between supermarket giants Asda and rival Sainsbury’s.

In a report released today, the CMA said that the buyout by Sainsbury’s would lead to increased prices, in-store, online and at petrol stations. It said there would be reductions in the quality and range of products available, and a poorer overall shopping experience if the merger were allowed to go ahead.

The CMA concluded that there would be a “substantial” lessening of competition across the UK as well as at a local level, and not just at locations where Sainsbury’s and Asda stores overlap.

Stuart McIntosh, chair of the inquiry group, said: “It’s our responsibility to protect the millions of people who shop at Sainsbury’s and Asda every week.

“We have concluded that there is no effective way of addressing our concerns, other than to block the merger.”

Both supermarkets have said they will not appeal the CMA’s ruling and have agreed to mutually terminate the deal.

In a statement, Sainsbury’s CEO, Mike Coupe, said: “The specific reason for wanting to merge was to lower prices for customers. The CMA’s conclusion that we would increase prices post-merger ignores the dynamic and highly competitive nature of the UK grocery market. The CMA is today effectively taking £1bn out of customers’ pockets.

“Sainsbury’s is a great business and I am confident in our strategy. We are focused on offering our customers great quality, value and service and making shopping with us as convenient as possible.”

The merger, which would have seen Sainsbury’s take over Walmart-owned, Leeds-based Asda, was first announced in April 2018.

The Competition and Markets Authority has been investigating the potential impact on the UK’s crowded supermarket sector since May 2018.

It did not look positive for the merger in February this year when the CMA said in preliminary findings that the merger should either be blocked entirely or would require substantial store sales.

The two supermarkets offered to sell upwards of 125 (up to 150) stores following the findings by the CMA which found that 629 local areas where the retailers both operate could become less competitive.

Recently, British Land has been selling sites for Sainsbury’s. It sold 12 sites which totalled £429m according to the Retail Gazette.

Asda and Sainsbury’s said they strongly disagreed with the CMA’s findings in February 2019, making errors in their analysis of the deal. They argued that a combined business would deliver an ambitious £1bn in price cuts annually to UK consumers by the third year if the deal went ahead.

The supermarkets are facing stiff competition from European retailers Aldi and Lidl, who have slowly been working up their market share in the last few years.

Sainsbury’s market share fell by 0.6% in the last 12 months. This saw it lose its place to Walmart-owned Asda last month, according to data by Kantar.

Russ Mould, investment director at AJ Bell, said: “There were lingering doubts that consumers would benefit from the supermarkets coming together and suppliers were certainly shivering in their boots about how tough a combined Sainsbury’s-Asda entity could be.

“All attention now turns to Sainsbury’s and how it will no longer be able to lean on Asda to drive earnings.

“Its sales have been weak and the customer experience in its stores has been getting worse.

“Management may argue they were distracted by the deal talks but that would be a poor excuse. They have taken their eye off the ball and lost focus on how the day-to-day business is run.”
Mould says that Sainsbury’s chief executive Mike Coupe needs to have a “radical Plan B” to save the business.

He said: “Coupe was caught singing ‘We’re in the Money’ following the initial news that Sainsbury’s planned to merge with Asda. Today you’re more likely to hear Bonnie Tyler blasting down the aisles of Sainsbury’s supermarkets.

“Coupe is holding out for a hero: they’ve got to be strong and they’ve got to be fast otherwise Sainsbury’s problems will just get worse.”