Breaking news: Sainsbury's and Asda scrap merger

Breaking news: Sainsbury’s and Asda have scrapped their planned merger after the Competition and Markets Authority (CMA) chose to prohibit the deal.  

THE CMA published its decision today, saying that customers would be worse off if the two supermarket chains merged.

“It’s our responsibility to protect the millions of people who shop at Sainsbury’s and Asda every week. 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,” says Stuart McIntosh, chair of the CMA inquiry group.

“We have concluded that there is no effective way of addressing our concerns, other than to block the merger.”

As a result of the decision, Sainsbury's, Walmart and Asda have mutually agreed to terminate the transaction.

Sainsbury's CEO Mike Coupe says, "The specific reason for wanting to merge was to lower prices for customers. 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 £1 billion out of customers' pockets.

"Sainsbury's is a great business and I am confident in our strategy. We are focused on offering our customers great quality, value and service and making shopping with us as convenient as possible."

According to analyst GlobalData, the CMA decision puts Sainsbury’s in a difficult position. It “Puts the heat on Sainsbury’s CEO Mike Coupe. Whatever the rights or wrongs of the CMA’s decision, he appears to have wasted a year chasing an impossible dream while its competitors took full advantage of its distraction,” says GlobalData UK retail research director Patrick O’Brien.”Its results over the last year have been poor, with store standards falling noticeably, and it must now refocus on retail basics rather than chase another big acquisition.

 “Asda’s performance does not give as much cause for concern as Sainsbury’s, which itself puts more pressure on Coupe. Why has Asda been able to manage the distraction of the merger so much better?”

O’Brien predicts more change for Asda, and concludes that Walmart may seek to sell it to another retailer. “It opens the possibility of private equity or floating the business, or a foreign retailer entering the market. Amazon will always be speculated about, but we do not believe that taking on a major physical food presence in the UK fits with its strategy, despite the Whole Foods deal in the US, which was a distressed (i.e. cheap) business, more focussed on affluent customers.”

What’s Hot on Essential Retail?