Sainsbury’s-Asda merger in serious doubt after regulator concerns

The CMA reported 'extensive' concerns regarding the proposed supermarket tie-up. Picture: Bill McBurnie

The Competition and Markets Authority (CMA) reported “extensive” concerns regarding the planned £12 billion deal, cautioning that the tie-up could drive up goods prices while reducing quality and choice for shoppers.

Based on provisional findings as part of an in-depth probe, the CMA said it would be “difficult for the companies to address the concerns it has identified”.

The watchdog has found 629 areas where it considers there could be a substantial reduction in competition in supermarkets, in addition to a further 290 areas where competition could be reduced in the online sector.

Options to address these concerns could include blocking the proposed deal entirely, or forcing the chains to sell off a “significant” number of stores and assets, potentially including either the Sainsbury’s or Asda supermarket brands.

Stuart McIntosh, chairman of the independent inquiry group carrying out the CMA investigation, said: “These are two of the biggest supermarkets in the UK, with millions of people purchasing their products and services every day.

“We have provisionally found that, should the two merge, shoppers could face higher prices, reduced quality and choice, and a poorer overall shopping experience across the UK.”

The watchdog said selling one of the two brands could “recreate the competitive rivalry lost through the merger”, though experts said the actions to address its concerns would leave the deal dead.

Sainsbury’s boss Mike Coupe vowed to continue fighting for the takeover and claimed the CMA has “moved the goalposts”, telling the BBC that the findings were “outrageous” and “fundamentally flawed”. Shares slumped by up to 16 per cent in early trading.

A spokesman for Sainsbury’s and Asda said: “We are surprised that the CMA would choose to reject the opportunity to put money directly into customers’ pockets, particularly at this time of economic uncertainty.

“We will be working to understand the rationale behind these findings and will continue to press our case in the coming weeks.”

Laith Khalaf, senior analyst at Hargreaves Lansdown, said: “The CMA has basically kicked the Sainsbury-Asda merger into touch. While the regulator left the door open for the supermarkets to sell off assets to complete the deal, it’s clearly not keen on that solution.

“The supermarkets will now have to bend over backwards if they want to proceed with the merger, and even then, wouldn’t be guaranteed a favourable ruling from the CMA.

“Sainsbury shares have fallen significantly as hopes for the merger have collapsed. It’s an ill wind indeed which blows no-one any good, but that seems to be the order of the day in the supermarket sector with Tesco, and Morrison selling off too.”

Shares in Morrisons fell 5 per cent as investors fretted over the outlook for consolidation in the grocery sector and the prospect for rivals to snap up offloaded stores.

Tim Roache, general secretary of the GMB union, called CMA’s findings “staggering”. He added: “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. If this merger were allowed to go ahead, we could see thousands of jobs at risk in everything from stores and distribution, to head office and home shopping.”

The CMA is consulting on the provisional findings and also the possible remedies, with responses due by 13 March and 6 March, respectively.

It will publish its final report by 30 April, having recently extended the original deadline by almost two months.

Under the merger plans unveiled in April, the combined group would be bigger than current market leader Tesco with combined revenues of £51 billion and a network of 2,800 Sainsbury’s, Asda and Argos stores.

Sainsbury’s has insisted the merger group would lower prices by around 10 per cent on products customers buy regularly.