The Competition and Markets Authority (CMA) has blocked the planned merger between Sainsbury’s (SBRY) and Asda, saying it could have led to “a substantial lessening in competition”, leaving the UK’s shoppers and motorists worse off.
The proposed megadeal has been the cause of much investor excitement, sending shares in Sainsbury’s up by a fifth when it was first announced in April last year. However, enthusiasm waned considerably after the CMA’s provisional findings highlighted competition concerns – using the same wording that ultimately made it into the final report. Still, some investors were not expecting the regulator to take such a hard line, and shares in Sainsbury’s fell 5 per cent on the day of the news.
Sainsbury’s followed the CMA’s announcement with one of its own, saying the groups had “mutually agreed” to end the transaction. In a statement, chief executive Mike Coupe criticised the CMA, claiming the objective of the deal was to lower prices for consumers, adding that the regulator was “effectively taking £1bn out of customers pockets”. The figure is a reference to a pledge the group made to invest £300m in reducing prices in the first year of the combination, followed by £700m over the subsequent two years.
The big question now is how the supermarket group will move on from this setback. The prospect of the deal has overshadowed its recent announcements, but Sainsbury’s has made substantial progress integrating Argos, its last significant acquisition. Synergies were ahead of schedule at the previous update, while sales were up 3.5 per cent. However, total retail sales were down 11.1 per cent on a like-for-like basis over the Christmas period. The group releases its full-year results on Wednesday and is expected to give further details of its growth strategy then.
