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CMA blocks Sainsbury’s-Asda merger

The Competition and Markets Authority (CMA) has confirmed that it is blocking the proposed merger of Sainsbury’s and Asda. The two chains, along with Walmart, have since stated that they are abandoning the deal.

| NamNews

The widely expected decision was outlined in the regulator’s final report from its investigation into the tie-up. As flagged in its provisional findings in February, the CMA stated the deal could lead to shoppers and motorists being worse due to expected price rises, reductions in the quality and range of products available, or a poorer overall shopping experience.

The group of independent CMA panel members concluded that the tie-up would result in a substantial lessening of competition at both a national and local level for people shopping in supermarkets and online. They stated this would mean shoppers right across the UK would be affected, not just in the areas where Sainsbury’s and Asda stores overlap.

In making the decision to prohibit the merger, the CMA said it had reviewed a wide range of issues in detail, such as the increased competition presented by discounters like Lidl and Aldi, and how new or expanding competitors could affect the retail market, including online. However, it stated that these industry developments did not allay its competition concerns about the merger.

It added that it had also reviewed the two companies’ statement they would cut some prices. However, the CMA said its analysis showed that, overall, the merger would reduce competition in the market and is more likely to lead to price rises than price cuts.

Stuart McIntosh, chair of the CMA inquiry group, commented: “It’s our responsibility to protect the millions of people who shop at Sainsbury’s and Asda every week. Following our in-depth investigation, we have found this deal would lead to increased prices, reduced quality and choice of products, or a poorer shopping experience for all of their UK shoppers.

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

Following the release of the CMA’s final report, Sainsbury’s, Walmart and Asda this morning stated that they have “mutually agreed” to terminate the transaction.

Sainsbury’s CEO, Mike Coupe, commented: “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.”

He added: “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.”

Analysts have speculated that Sainsbury’s could face a major shake-up under its new chairman if the merger plan failed.  It has been suggested that the first major move by Martin Scicluna will be an overhaul of Sainsbury’s top management team, with Coupe possibly being replaced. He masterminded the deal after nearly two years of secret talks with Asda’s management and owner Walmart.

Investors are said to have been pushing for Sainsbury’s management to cut their losses and walk away from the deal so they can focus their efforts on improving the performance of the core business.

Meanwhile, it has been suggested that a definitive CMA block would supply the catalyst for a sale of Asda by Walmart, with private equity firms the most likely bidders. However, with Asda recovering some momentum after cutting prices and improving its own label ranges, its US owner may decide to recommit to its UK subsidiary.

Judith McKenna, CEO of Walmart’s international division, said it was “disappointed” by the CMA’s decision, adding: “Our focus now is continuing to position Asda as a strong UK retailer delivering for customers. Walmart will ensure Asda has the resources it needs to achieve that.”

Read more | Original article 

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