Coupe de grace for merger

ONE of my favourite quotations on business comes from Mario Puzo, who observed in his novel The Godfather that, ‘like many businessmen of genius, Vito Corleone learned that free competition was wasteful, monopoly efficient’.

One advantage enjoyed by Don Corleone was that, as a Mafia kingpin in New York, he didn’t have to bother with the UK Competition and Markets Authority (CMA), which no doubt would have had plenty to say about his retail methods for his Genco olive oil.

Unfortunately for him, Sainsbury’s boss Mike Coupe does have to submit to the CMA, which has all but killed off his plan for a £14bn mega-merger with Asda.

The deal was always going to be a hard sell to the competition authorities.

Coupe’s case – that taking out a major competitor, Asda, would be good for consumers and not just more efficient for his business – was deeply counter-intuitive. It is diametrically opposed to accepted economic wisdom that the more competition, the better it is for shoppers and suppliers.

He made a good fist of arguing the merger would create a new force whose combined buying power could deliver lower prices for consumers by making big suppliers like Unilever take a cut on profit margins. But he might have realised a body like the CMA was not going to be easily swayed.

Particularly not when this was the first big case for new CMA chairman Andrew Tyrie. In a previous life the former Tory MP was the terror of the banks as chair of the Treasury Select Committee. It was entirely predictable he was going to take a tough line in his new gig.

It feels as though Sainsbury’s and Asda convinced themselves their case was unassailable, forgetting they could have all the brilliant arguments in the world but it didn’t mean the watchdog would agree.

The CMA has not covered itself in glory. A judicial review found it had made ‘unreasonable and unfair’ demands of the supermarket groups during its consultations over the deal, which is shoddy.

But unfortunately for Sainsbury and Asda, the CMA is calling the shots, right or wrong. The failure of a deal on this scale is a hard thing to bounce back from for any chief executive, no matter how able.

Coupe can anticipate some uncomfortable conversations with Sainsbury’s new chairman, City grandee Martin Scicluna, who will have some hard questions on what went wrong and what on earth is Plan B.

Scicluna will have his own ideas on whether Plan B includes Coupe, now his merger sleeps with the fishes.

Fly away

THE Sainsbury’s-Asda debacle is not the most acrimonious in town. That dubious accolade goes to Flybe’s rescue takeover by the Connect Air consortium, led by Richard Branson’s Virgin.

The bid, though small beer in financial terms by the standards of the Square Mile, is ridiculously convoluted and has caused disproportionate levels of rancour.

In the latest twist, a new consortium has come in at the eleventh hour with a 4.5p a share proposal, well above the 1p a share offered by Connect. The board of Flybe has rejected it on the basis it is uncertain and a penny in the hand is worth more than fourand-a-half pennies that may never come.

Flybe shares, however, have risen to 2.8p, so the least the board can do is use this latest approach as leverage to try to get more out of Virgin than their ridiculously low-ball bid. Worth a try, surely.

Lloyds lucre

CREDIT where it’s due. Antonio Horta-Osorio has done a good job at bringing Lloyds Banking Group back to health after the devastation of the financial crisis.

Profits of £6bn, a £2.3bn dividend and a £1.75bn share buyback are very welcome for long-suffering shareholders. He has cleaned up the balance sheet and stripped risk out of the bank. He is nearly there in terms of resolving the PPI mis- selling that has dogged it for years. The only remaining legacy issue of substance is alleged mistreatment of some small and medium firms.

A couple of caveats. Lloyds downplayed worries over Brexit though the bank, whose fortunes are now almost entirely tied to the UK economy, is vulnerable.

But perhaps the biggest risk lies in its strategy to grow by an ambitious expansion in wealth management operations.

History shows aggressive selling doesn’t end well, so let’s hope Lloyds has learned its lesson on that front.