Asda-Sainsbury's merger in doubt amid competition concerns

Market share of UK supermarkets

"These are two of the biggest supermarkets in the United Kingdom, with millions of people purchasing their products and services every day".

Sainsbury's chief executive Mike Coupe told BBC Radio 4's Today Programme that he was disappointed with the CMA's announcement and said the decision was "fundamentally flawed".

At 1105 GMT, Sainsbury's shares were down 16.6 percent at 239.95 pence.

The proposed merger between Sainsbury's and Asda could be in jeopardy after the UK's competition watchdog said the tie-up could lead to a "poorer experience" for customers.

If approved, the deal would create a company with annual revenue of about $66 billion, more than 2,800 stores and a grocery market share of 31.2 percent.

"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".

Unfortunately for them, the light at the end of the tunnel turned out to be an oncoming train.

The CMA is consulting on the provisional findings and also the possible remedies, with responses due by March 13 and March 6 respectively.

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Britain's competition regulator has dealt a potentially fatal blow to Sainsbury's planned $9.5 billion (£7.3 billion) takeover of Walmart's Asda, saying it was unlikely the companies would be able to address its "extensive" concerns about the deal.

However, it added that it "currently considers that there is a significant risk that a divestiture will not be effective in this particular case".

The report also stated the two supermarkets may have to sell off a significant number of stores. Sainsbury's has underperformed the wider sector in recent years, while Asda has steadily improved. "This is a massive problem for any business that might be considering a transaction in the United Kingdom", he said.

Sainsbury's suffered a 15 per cent drop in its share price this morning after the grocer's £12bn proposed merger with Asda was thrown into doubt following a swathe of concerns raised by Britain's competition watchdog.

The CMA's Mr McIntosh said: "We have provisionally found that, should the two merge, shoppers could face higher prices, reduced quality and choice, and a poorer overall shopping experience across the UK".

"Despite the savings being independently reviewed by two separate industry specialists, the CMA has chosen to discount them as benefits". That covers 45% of Sainsbury's stores and 57% of Asda's.

Patrick O'Brien, UK retail research director for GlobalData, said the CMA's provisional findings had "devastated any prospect of the merger going ahead".

He added: "There's an incredibly delicate balance to be struck here, because the CMA is also concerned that if the supermarkets do sell enough assets to proceed with the merger, the combined entity may damage competition by being too weak, rather than too strong".

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