Sainsbury’s and Asda merger put in doubt over price rise fears
THE merger between Asda and Sainsbury’s has been thrown into doubt after Britain’s competition watchdog warned it would hit shoppers with higher prices.
The proposed £12billion tie-up would also reduce the quality and choice of groceries on offer to customers, the Competition and Markets Authority (CMA) warned.
Stuart McIntosh, chairman of the independent inquiry group, yesterday laid out limited options for moving forward but said it was “likely to be difficult for the companies to address the concerns it has identified”.
Rivalry
Options include blocking the deal altogether or selling off a significant number of stores and other assets – potentially including one of the Sainsbury’s or Asda brands – “to recreate the competitive rivalry lost through the merger”.
Mike Coupe, CEO of Sainsbury’s, the UK’s second biggest supermarket, branded the provisional findings “outrageous” and accused the CMA of rewriting the rules.
“A UK plc with Brexit looming and a completely unpredictable set of competition rules, who would invest in this country? This is just outrageous,” he said.
In a statement, Sainsbury’s and Asda said: “These find- ings fundamentally misunderstand how people shop in the UK today and the intensity of competition in the grocery market. The CMA has moved the goalposts and its analysis is inconsistent with comparable cases.”
The supermarket giants, which announced plans to merge last April, said they would press ahead despite the CMA’s concerns.
The union would see the new group leapfrog Tesco to take a 30 per cent market share with more than 2,100 stores. The pair, battered by discount rivals Aldi and Lidl, pledged to negotiate big savings from suppliers to cut prices on everyday products by about 10 per cent.
However, the CMA found the pair had supermarkets close together in 629 areas and insisted a “substantial lessening of competition” would see prices rise instead.
Tim Roache, general secretary of the GMB union, warned thousands of jobs could be put at risk “in everything from stores and distribution, to head office and home shopping”.
Professor John Colley, of Warwick Business School, said: “Everyone, rich or poor, has to buy groceries, so the CMA’s final decision will affect everyone.
“It seems the only major beneficiaries of this merger would be the Sainsbury’sAsda shareholders.”
And Scott Corfe, chief economist at the Social Market Foundation, said: “Rather than allowing supermarkets to merge themselves out of trouble, by bullying suppliers such as farmers to lower prices, we should be forcing these firms to try harder.”
SAINSBURY’S has vowed to fight on to rescue its takeover of Asda after the deal was thrown into serious doubt by the competition watchdog.
A provisional verdict on the planned merger of Britain’s second and third biggest supermarkets found “extensive competition concerns” relating to higher prices and reduced quality and choice for shoppers.
The Competition and Markets Authority said it would be difficult for the companies to satisfy its concerns through the disposal of a “significant number” of stores and potentially one of the brands.
Its final report is due at the end of April, but speculation that Sainsbury’s and Asda had already thrown in the towel were dismissed as wide of the mark. Sainsbury’s shares plunged 53½p to 234½p.
The companies insisted that joining forces would create “significant cost savings”, allowing them to lower prices. Sainsbury’s chief executive Mike Coupe said the CMA had “fundamentally moved the goalposts, changed the shape of the ball and chosen a different playing field”.
They added: “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. We will be working to understand the rationale behind these findings and will continue to press our case in the coming weeks.”
It is thought a legal challenge remains a possibility.
Analysts said rejection of the deal would throw the spotlight over the future of Asda, with current US owner Walmart seen as keen to sell the business.
Shore Capital analyst Clive Black said the CMA had “destroyed the bold but seemingly naive and perhaps arrogant approach by Sainsbury’s and Asda to create a duopoly”.
The regulator had already cleared Tesco’s takeover of wholesaler Booker, which had encouraged hopes that further food retail consolidation would be allowed.
Black said: “For Asda, its parent wants rid. Hence, we assert that Asda in its present form is not tenable. Exit plans would need to be carefully considered.
“Walmart may be dusting off plan B already: a float, another retail merger/ sale, or a big private equity deal. Whatever the outcome, Asda’s present status does not appear permanent.”