CMA blocks proposed Sainsbury’s-Asda merger

Sainsbury's Asda
// Sainsbury’s and Asda’s proposed £12 billion merger blocked by the CMA
// The competition watchdog said shoppers would be worse off if the merger was approved
// In its final report, the CMA found that the deal would lead to increased prices and decreased quality and range of products
// CMA also said the merger would result in “substantial lessening of competition” in the sector

The UK’s peak competition regulator has blocked the proposed £12 billion merger of Sainsbury’s and Asda, delivering a blow to the grocery giants who wanted to combine to overtake longtime market leader Tesco.

The CMA said the deal would lead to increased prices in stores, online and at many petrol stations across the UK.

Sainsbury’s and Walmart, the US parent company of Asda, responded to the decision by mutually agreeing to terminate the proposed deal – which was first announced in April last year.

In its final report into the deal, the CMA said shoppers and motorists would be “worse off” if Sainsbury’s and Asda were to merge.

It said the tie-up would lead to price rises, reductions in the quality and range of products, and a poorer overall retail experience.

The watchdog also said the deal would have resulted in a “substantial lessening of competition” at both a national and local level and that shoppers right across the UK would be affected – not just in the areas where Sainsbury’s and Asda stores overlapped.

“It’s our responsibility to protect the millions of people who shop at Sainsbury’s and Asda every week,” said Stuart McIntosh, the chairman of the CMA inquiry group that led the probe into the proposed merger.

“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.”

Prior to the CMA’s final decision, Sainsbury’s and Asda had offered to sell up to 150 stores as part of efforts to address competition concerns.

They also claimed that shoppers would be deprived of lower prices should their merger be blocked.

The duo had pledged to make a number of post-merger commitments, such as investing £1 billion a year in lowering prices by the third year of the deal completing, equating to a 10 per cent cut on everyday items.

Sainsbury’s chief executive Mike Coupe said the CMA’s final decision “effectively” takes £1 billion out of customers’ pockets.

“The specific reason for wanting to merge was to lower prices for customers,” he said.

“The CMA’s conclusion that we would increase prices post-merger ignores the dynamic and highly competitive nature of the UK grocery market.”

Walmart chief executive Judith McKenna said: “While we’re disappointed by the CMA’s final report and conclusions, 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.”

Asda chief executive Roger Burnley said: “We were right to explore the potential merger with Sainsbury’s, which would have delivered great benefits for customers and supported the long term, sustainable success of our business.

“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.”

A merger between the Sainsbury’s and Asda, the UK’s second and third biggest grocery retailers in terms of market share, would have created a company bigger than Tesco with estimated revenues of £51 billion and a network of 2800 Sainsbury’s, Asda and Argos stores.

It also would have given Walmart a way to exit the UK market, one of the weakest performers in its global portfolio despite Asda’s glowing financial figures in recent years.

However, during the CMA’s investigation, fears were expressed that suppliers could get squeezed as a result, with the tie-up giving the merged entity increased buying power.

It remains unclear where the Sainsbury’s and Asda will go from here, but it is understood that Walmart will continue to look to sell Asda to another buyer.

Click here to sign up to Retail Gazette‘s free daily email newsletter



Please enter your comment!
Please enter your name here