Sainsbury’s has confirmed it has agreed terms for a £12 billion merger with Walmart-owned Asda, setting the stage for one of the most audacious deals in British retail history.
The creation of a supermarket giant as part of a £10 billion deal has also raised fears over the impact it may have on jobs.
Liberal Democrat leader Sir Vince Cable, the former business secretary, said the Competition and Markets Authority (CMA) “must investigate” any deal.
Shadow business secretary Rebecca Long-Bailey echoed Sir Vince’s calls, warning the merger risks “squeezing what little competition there is in the groceries market even further”.
Sir Vince said the CMA should force the companies to sell off stores if the merger meant the new giant was dominant in a particular area, telling the watchdog’s new chief, Andrew Tyrie, to “get tough with monopolies”.
Ms Bailey warned that, in the absence of proper vetting, it would be “British shoppers that suffer from rising prices and British workers that may be fearing for their jobs”.
Shares in Sainsbury’s rocketed 20% at the market open as investors interpreted the deal as a boon for the firm.
The latest statistics show that Tesco has a 25% grocery market share, while Sainsbury’s has 13.8% and Asda has 12.9%.
Together, they would move ahead of Tesco, with 26.7% of the grocery market.
The merger would have to be approved by the CMA, because the two entities are the second and third largest grocery retailers in the UK.
Some expect that a deal could be approved after the CMA’s decision to allow Tesco to take over Booker, the UK’s largest grocery wholesaler in a deal worth £3.7 billion.
News of the potential deal also sparked concern among workers’ unions, which demanded urgent meetings with Salisbury’s and Asda chiefs.
Tim Roache, GMB general secretary, said: “Our first priority is to safeguard the job of every single Asda member, both in stores and in distribution. We are demanding an urgent meeting with Asda to get the answers and assurances our members need and deserve.
“GMB will be making sure the voices of supermarket workers are not lost amidst all the talk of mergers and acquisitions. We should never forget these companies’ empires are built upon the hard work of their employees.
“Rest assured, we will be exploring every available legal avenue to protect our members’ jobs.”
Joanne McGuinness, Usdaw national officer, said: “Our priorities will be to protect our members and ensure any deal between the retailers does not impact on their jobs or incomes.”
Conversely, shares in Tesco fell 4% and Morrisons stock was down 3%.
Separately, Sainsbury’s revealed that its full year pre-tax profit fell 19% to £409 million. Like for like sales grew 1.3% and the group delivered £185 million in cost savings, driven by cost savings linked to its integration of Argos.
Asda, meanwhile, saw its fourth consecutive quarter of positive like-for-like sales growth in the three months to March 31.
In the financial year to December 2017, Asda saw a 2.6% in sales to around £22.2 billion and a return to positive comparable sales for the full year.
However, investments in price dragged down operating profit to £720 million from £845 million.