Sainsbury’s-Asda merger inches closer to competition probe

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CMA Sainsbury's-Asda

The UK’s peak competition authority has taken one step closer to commencing full-blown probe into the proposed £12 billion mega merger of Sainsbury’s and Asda.

The Competition and Markets Authority (CMA) confirmed today that it is looking into the proposed deal and is currently in the “pre-notification” phase, which means it is in the midst of gathering information from Sainsbury’s and Asda before a formal inquiry can be launched.

The CMA said it was considering whether the merger would result in “a substantial lessening of competition” and issued a preliminary “invitation to comment”, whereby interested parties can submit initial views on the impact that the merger could have.

Rivals such as Tesco and Morrisons are expected to take the opportunity to submit their thoughts on the deal.

In order to obtain approval from the CMA, analysts expect the Sainsbury’s and Asda will be forced to close down or sell of scores of stores, especially in areas where they overlap.

Should it be approved, the new Sainsbury’s-Asda business entity would spark one of the biggest shake-ups in the UK grocery sector since Morrisons acquired Safeway 14 years ago.

The merger of the country’s second and third largest grocers would also topple Tesco’s longstanding reign as the UK’s biggest grocery my market share.

Sainsbury’s-Asda’s revenues would also be £51 billion thanks to network of 2800 Sainsbury’s, Asda, Habitat, Argos and George stores.

At the time of the deal’s announcement, Sainsbury’s chief executive Mike Coupe said the merger would lead to £500 million in cost savings and further investment to lower prices on everyday items.

However, food campaigners, environmental lobbyists and a leading farmers’ union have already warned the CMA that the existence of two mega grocery groups – Tesco and the proposed Sainsbury’s-Asda entity – would give them a combined grocery market share of around 60 per cent and lead to an adverse impact on the environment.

There are also fears that the merger would force many farmers to cut corners on environmental safeguards and shelve green initiatives in order to meet growing pressure to keep their prices down.

The chairs of the cross-party Environment, Food and Rural Affairs Committee and Business, Energy and Industrial Strategy Committee have laos urged the CMA it to consider issues of “market dominance” and whether the Sainsbury’s-Asda deal would create “local monopolies”.

On the other hand, groceries code adjudicator Christine Tacon said she had “no concerns at all” about the size of Sainsbury’s-Asda, as bigger retailers were often easier to regulate.

She added that she hoped the merger would bring Asda up to Sainsbury’s standards in terms of how it treated suppliers.

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