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Sainsbury's-Asda merger under jeopardy over price hikes and product quality decline

By Sarah Parsons | Published: 20-Feb-2019

The retail deal between the supermarket giants have come under scrutiny by the Competition and Markets Authority

The UK’s competition watchdog has thrown some serious doubt over the planned merger between supermarket giants Sainsbury’s and Asda.

The Competition and Markets Authority (CMA) has found that the proposed deal could lead to higher prices, a reduced range of products, and an overall poorer shopping experience.

To resolve the concerns, the CMA has said it could block the deal, or force the retailers to sell off a number of stores and assets.

It also stated that it was "likely to be difficult" for the chains to address the concerns raised.

The merger deal, to create one of the UK’s leading supermarket groups with combined revenues of £51bn, was announced in November 2018.

Sainsbury’s share price plummeted by 14% after the CMA threatened to obstruct the deal this morning.

In a joint statement, Sainsbury’s and Asda, said the CMA “fundamentally misunderstand how people shop in the UK today”.

The pair accused the watchdog of moving “the goalposts” and of inconsistency with comparable cases.

“Despite the savings being independently reviewed by two separate industry specialists, the CMA has chosen to discount them as benefits,” a spokesperson for Asda and Sainsbury’s said.

“We are surprised that the CMA would choose to reject the opportunity to put money directly into customers’ pockets, particularly at this time of economic uncertainty.”

If the deal were to go ahead, Asda’s parent company Walmart will hold 42% of the share capital of the combined business, made up of 29.9% of Sainsbury’s.

Walmart will also receive approximately £2.975bn in cash, valuing Asda at approximately £7.3bn on a debt-free, cash-free and pension-free basis.

Stuart McIntosh, chair of the independent inquiry group carrying out the investigation, said: “These are two of the biggest supermarkets in the UK, with millions of people purchasing their products and services every day.

“These are our provisional findings, however, and the companies and others now have the opportunity to respond to the analysis we’ve set out today. It’s our responsibility to carry out a thorough assessment of the deal to make sure that the sector remains competitive and shoppers don’t lose out.”

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