Sainsbury’s Wipes Off £1bn In Value

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This morning, Approximately £1 billion has been wiped off the value of Sainsbury’s. It comes as it appears that the planned Sainsbury’s-Asda takeover deal had gone down the drain.

On Wednesday morning, the Competition and Markets Authority (CMA), the UK government’s top competition watchdog, ruled that the proposed grocery deal would not be good for shoppers and push up the prices. The regulator has the power to stop the £7.3 billion ($9.5 billion) takeover, which was aimed to create a massive shopping giant with enough heft to challenge Tesco, the industry leader.

In a written statement, the CMA stated: “The proposed deal could lead to a worse experience for in-store and online shoppers across the UK through higher prices, a poorer shopping experience, and reductions in the range and quality of products offered.”

The regulator said that it was “likely to be difficult for the companies to address the concerns it has identified.”

A final ruling of the CMA on the said deal is expected to be announced by the end of April.

The shares in Sainsbury’s dropped by about 16 percent after the decision, placing it at the bottom of the FTSE 100 index. The market capitalisation of the company plunged to £5.3 billion from £6.3 billion.

The shares in Walmart, the American retail giant which owns Asda, were not making any significant moves in premarket trading.

Both Asda and Sainsbury’s said that they disagreed with the findings of the CMA, and in an interview with the BBC, Mike Coupe, the CEO of Sainsbury’s, called the report “outrageous.”

In a joint statement, the companies said: “We fundamentally disagree with the provisional findings.”

It added: “These misunderstand how people shop in the UK today and the intensity of competition in the grocery market … Combining Sainsbury’s and Asda would create significant cost savings which would allow us to lower prices.”

According to annual data from Euromonitor, a research firm, Tesco dominates the grocery scene in the United Kingdom with almost 22percent market share. Sainsbury’s is considered as the second largest with just over 12 percent of the market. It is followed by Asda with 11 percent.

The market share figures have continued to be largely stable for years, however, smaller competitors such as Aldi have been gaining some ground. Aldi Group now has 6.5 percent of the market, making it the fifth largest grocery retailer, just trailing behind Morrisons.

The CMA said that it would allow the stakeholders to challenge its provisional findings and present further evidence before it makes its final decision on whether to cancel the takeover.

Most analysts are not optimistic.

Analysts at Barclays stated: “Although the CMA might conceivably be persuaded to think differently … our central assumption would be that this is unlikely to happen.”

They added: “We, therefore, assume that the proposed merger will have to be abandoned – even though Sainsbury’s and Asda may not openly accept the inevitability of that outcome at this stage.”