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Saturday 07 December 2019

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CMA blocks Sainsbury's and Asda merger

Written by Peter Walker
25/04/19

The Competition and Markets Authority (CMA) has blocked the Sainsbury’s and Asda merger after finding it would lead to increased prices in stores, online and at many petrol stations across the UK.

In its final report, published today, the regulator found that UK shoppers and motorists would be worse off if Sainsbury’s and Asda - two of the country’s largest supermarkets - were to merge, due to expected price rises, reductions in the quality and range of products available, or a poorer overall shopping experience.

Following an in-depth investigation, a group of independent CMA panel members concluded that the deal would result in a substantial lessening of competition at both a national and local level for people shopping in supermarkets. This would mean shoppers right across the UK would be affected, not just in the areas where Sainsbury’s and Asda stores overlap.

Stuart McIntosh, chair of the inquiry group, said: "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," he added.

The CMA’s investigation found that, as well as affecting in-store customers, the merger would result in increased prices and reduced quality of service, such as fewer delivery options, when shopping online.

In making the decision to prohibit the merger, the CMA group reviewed a wide range of issues in detail, such as the increased competition presented by discount stores like Lidl and Aldi, and how new or expanding competitors could affect the retail market, including online.

Whilst the panel carefully considered these industry developments, they did not allay its serious competition concerns about the merger, read a statement.

The group also carefully reviewed the companies’ statement they would cut some prices. However, detailed analysis of the impact of the deal clearly showed that, overall, the merger would reduce competition in the market and is more likely to lead to price rises than price cuts.

This final decision to block the deal follows the publication of the CMA’s provisional findings and a subsequent consultation period, during which the CMA reviewed responses from a variety of interested parties, including Sainsbury’s and Asda themselves.

The deal was originally agreed a year ago, with the combination planned to result in Walmart holding 42 per cent of the issued share capital and receiving £2.97 billion of cash, valuing Asda at approximately £7.3 billion on a debt-free, cash-free and pension-free basis.

Patrick O’Brien, UK retail research director at GlobalData, commented that the decision puts pressure on Sainsbury’s chief executive Mike Coupe.

"Whatever the rights or wrongs of the CMA’s decision, he appears to have wasted a year chasing an impossible dream while its competitors took full advantage of its distraction - its results over the last year have been poor, with store standards falling noticeably, and it must now refocus on retail basics rather than chase another big acquisition.

“One of the key mistakes Coupe made was in failing to offer any assurances on price cuts until the CMA’s devastating provisional findings in February: it built the rationale for the merger on the rather vague notion that it would reduce prices by 10 per cent by putting pressure on major suppliers, though it didn’t make it clear how many products this would include," he continued, adding: "It only made some assurances of audited price investment later, but this might have had more sway if it had offered them at the start."


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