The planned £12 billion Sainsbury’s-Asda merger has been thrown into serious doubt after the competition watchdog said it could block the deal unless the pair sell off significant stores or even one of the brands.
The Competition and Markets Authority (CMA) said it found “extensive” concerns over their planned tie-up, warning it could lead to higher prices and reduce quality and choice for shoppers across the UK.
In damning provisional findings of its in-depth probe, the CMA said it would be “difficult for the companies to address the concerns it has identified”.
It has found 629 areas where there could be a substantial reduction in competition in supermarkets and a further 290 areas where online competition could be reduced.
The CMA said options to address concerns could include blocking the deal altogether, or forcing the chains to sell off a “significant” number of stores and assets, potentially including either the Sainsbury’s or Asda brand.
Sainsbury’s boss Mike Coupe vowed to continue fighting for the takeover and claimed the CMA has “moved the goalposts”.
But its shares slumped by up to 16% as one retail expert said the deal “looks to have suffered a mortal blow”.
Shares in Morrisons also fell 5% as investors fretted over the outlook for consolidation in the grocery sector and the prospect for rivals to snap up offloaded stores.
The CMA said its in-depth investigation had so far found the merger could push up prices and reduce quality in store and online, while it could also lead to higher fuel costs at more than 100 locations where Sainsbury’s and Asda petrol stations overlap.
We've provisionally found that the proposed Sainsbury’s / Asda merger could lead to:
💷 Higher prices for groceries ⛽ Higher fuel prices🛒 Less choice and worse quality for shoppers
— Competition & Markets Authority (@CMAgovUK) February 20, 2019
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.
Clive Black, retail analyst at Shore Capital, said the CMA looks “minded to reject the proposed merger”.
“Whilst we need to see if Sainsbury and Asda can argue and legally challenge the CMA’s findings, 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,” he added.
The CMA is consulting on the provisional findings and also the possible remedies, with responses due by March 13 and March 6 respectively.
It will publish its final report by April 30, having recently extended the original deadline by almost two months.
Mr Coupe told the BBC the findings were “outrageous” and “fundamentally flawed”.
A spokesman for Sainsbury’s and Asda added: “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.”
Under the merger plans unveiled last April, the combined group would be bigger than 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% on products customers buy regularly.