The Competition and Markets Authority (CMA) of the United Kingdom has blocked the proposed mega-merger between Asda, a chain that is owned by the US’s Walmart, and Sainsbury’s.
In a statement, the regulator said that it should not be permitted to go ahead since the consumers would be worse-off as there would be an increase in prices. It also said that there would be a reduction in the quality and choice of products.
The chair of the inquiry group at the CMA, Stuart McIntosh, stated: “It’s our responsibility to protect the millions of people who shop at Sainsbury’s and Asda every week.”
He added: “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.”
He continued: “We have concluded that there is no effective way of addressing our concerns, other than to block the merger.”
Sainsbury’s disclosed that it would not be appealing against the decision, however, Mike Coupe, its CEO, stated: “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.”
If the deal was able to go ahead, it would have created the biggest supermarket chain in the United Kingdom, overtaking Tesco.
In a research note, analysts at Bernstein stated: “Unsurprisingly, the CMA blocked Asda-Sainsbury’s merger. Reassuringly, [the Sainsbury’s stock] is not appealing. The market’s focus will now shift to: ‘What happens next for Sainsbury’s and Asda?’”
The shares in Sainsbury’s dropped in early trading, down by almost 2 percent, after already taking a hammering this year.
The chief market analyst at Markets.com, Neil Wilson, stated: “The real worry for Sainsbo’s [Sainsbury’s] is what now? Sainsbury’s is the squeezed middle, losing market share to discounters and simultaneously losing out to more premium brands. While Aldi and Lidl consistently gain market share and Tesco rebounds, Sainsbury’s is feeling the pinch. The worry is that it had no credible plan except this merger.”
He added: “The recent performance in stores has been less than impressive. After rising 1% in Q2, like for like sales ex-fuel declined 1.1% in Q3 versus estimates for a roughly 0.3% drop. Total retail sales were down 0.4%. Customers may be a little cautious but Sainsbo’s should be doing better.”