Competition regulator blocks Sainsbury’s-Asda merger

A planned tie-up between supermarket giants Sainsbury’s and Asda suffered a final blow from the UK’s competition watchdog, which said this morning that "it has decided to prohibit the merger in its entirety".

Read more: Watchdog may block Sainsbury's-Asda merger

Sainsbury’s, Walmart and Asda revealed today that they have mutually agreed to terminate the merger plans as a result. 

The Competition and Markets Authority warned that the £12bn tie-up, which would have created Britain’s largest grocer by market share, would be “expected to result in a substantial lessening of competition (SLC) in a number of markets in the UK”.

“We found extensive competition concerns which may be expected to lead to price rises or a worsening of quality, range or service for customers at either a national level or at individual store,” the CMA added.

Today’s final verdict comes two months after the CMA first threw the proposed tie-up into doubt.

In February the watchdog warned in its provisional findings that the tie-up could lead to "a substantial lessening of competition at both a national and local level”.

Sainsbury’s share price has tumbled nearly value nearly 20 cent over the last three months.

In a response to the CMA's final verdict today, Sainsbury’s chief executive, Mike Coupe accused the CMA of "effectively taking £1bn out of customers’ pockets".

He said: "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."

"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."

Asda boss Roger Burnley added: "We’re disappointed with their findings but will continue to find ways to put money back into customers’ pockets and deliver great quality and service in an ever changing and demanding market. I have always been hugely aware that the last year has been an unsettling time for all of our colleagues and am immensely grateful for their commitment and dedication during that time. Our focus is now on the most important job we all have – delivering for our customers."

Why it's interesting – the City A.M. view

Almost a year to the day since Sainsbury’s first revealed that it was in merger talks with Asda, it has all come crashing down.

In late April 2018 the two retail giants were losing market share to German discounters Aldi and Lidl, and the threat of Amazon moving into the grocery sector was very real. But 12 months down the line, their plans to combat industry pressures by merging have been torn apart, leaving both firms with the same troubles that they faced a year ago.

The immediate aftermath of today’s decision could be bloody. A number of City analysts say that they struggle to see how Sainsbury’s boss Mike Coupe can remain chief executive after pledging investors £500m savings from the project (which he has been spearheading). Next week's full-year results presentation might give some indication of the company's next steps.

As for Aldi, there is talk of parent owner Walmart looking to sell, with several potential private equity bids on the horizon.

Yet as far-reaching as this decision could be for the future of Britain’s supermarket industry, perhaps the most interesting point to come out of today’s news is not to do with Sainbury’s or Asda but the watchdog that has scuppered their hopes.

Sources say that the CMA’s approach to the tie-up has always felt “robust”, despite a number of last-ditch attempts from Sainsbury’s and Asda to help seal the deal.

For major corporates eyeing up a merger, today's conclusive blow to Sainsbury’s and Asda is worth bearing in mind.