The merger between Sainsbury’s and Asda has been thrown into serious doubt after Britain’s competition watchdog raised a catalogue of concerns, including higher prices and reduced quality and choice for customers.
In a provisional verdict on the planned £10bn merger, the Competition and Markets Authority (CMA) said it had found “extensive competition concerns” as part of its investigation into the proposed deal.
In a strongly worded statement, the CMA said the merger would create a “substantial lessening of competition at both a national and local level”.
Its findings sent shares in Sainsbury’s down by 15%, to 245p and dragged down other grocers, with Morrisons dropping 4.6%. Asda is owned by the US retail giant Walmart.
The merger of Britain’s second and third-largest supermarkets would create a market-leading chain with some 2,800 supermarkets and convenience stores.
Their combined market share would be more than 31%, overtaking the current market leader, Tesco, which has 27.7%. The merged group and Tesco would together control nearly 60% of all groceries sold in the UK.
The watchdog outlined numerous concerns, saying the deal would harm competition in every local market for supermarket groceries where either are present, in every local market for online grocery shopping. It also said it could mean higher petrol prices in 132 local markets where both supermarkets operate petrol stations.
The CMA, which since last June has been led by the Conservative former MP Andrew Tyrie, laid out limited options for addressing the concerns but said it was “likely to be difficult for the companies to address the concerns it has identified”.
Options include blocking the deal altogether or “requiring the merging companies to sell off a significant number of stores and other assets – potentially including one of the Sainsbury’s or Asda brands – to recreate the competitive rivalry lost through the merger”.
Analysts were sceptical that the merger could be re-engineered sufficiently to allow it to be cleared. The Shore Capital analyst Clive Black said: “The deal looks to have suffered a mortal blow; the CMA struggles to see how remedies can deliver its view of a competitive UK market.”
Sainsbury’s and Asda said they would press ahead despite the CMA’s concerns. Mike Coupe, the chief executive of Sainsbury’s, described the CMA’s analysis as “fundamentally flawed” and accused the regulator of rewriting the rules.
Coupe, who had said the deal would give shoppers a 10% cut in the price of popular foods, said: “They have fundamentally moved the goalposts, changed the shape of the ball and chosen a different playing field.
“A UK plc with Brexit looming, and a completely unpredictable set of competition rules, who would invest in this country? This is just outrageous,” he told BBC Radio 4’s Today programme.
A spokesperson for Sainsbury’s and Asda said: “These findings fundamentally misunderstand how people shop in the UK today and the intensity of competition in the grocery market … We will be working to understand the rationale behind these findings and will continue to press our case in the coming weeks.”
