The Competition and Markets Authority (CMA) has stated that it will publish its final report on the proposed merger of Sainsbury’s and Asda tomorrow.
Most analysts concluded that the deal was now dead in the water following the release in February of the CMA’s provisional findings from its investigation. The regulator’s assessment of the proposed merger was much tougher than many had been expecting, with it saying it had found “extensive competition concerns” that could lead to a “worse experience” for shoppers through higher prices and reductions in the range and quality of products offered.
Sainsbury’s and Asda’s have heavily criticised the CMA’s provisional findings and proposed remedies, saying the regulators analysis of their tie-up contained “significant errors”. They also attacked the CMA’s threshold at which competition concerns were triggered, saying this was set at an “unprecedentedly low level” which had therefore generated an “unreasonably high number of areas of concern”.
Last month, the two chains outlined a series pledges aimed at persuading the regulator to change its view on the merger. These included a pledge to deliver £1bn of lower prices annually, monitored independently by a third party. They have also outlined that they would be willing to dispose of between 125 and 150 stores in order to help secure regulatory approval, although this is around half the number of disposals that the CMA has called for to allay its concerns about a “substantial lessening of competition”.
If the deal is blocked, Sainsbury’s and Asda have the option of challenging the CMA’s decision in court. However, competition experts have suggested that the prospect of a successful challenge is remote.
“I would be genuinely shocked if the CMA has rowed back on its initial findings,” said Clive Black, a leading retail analyst from Shore Capital, adding: “I think Sainsbury’s could be in quite considerable trouble if the CMA does not change its mind.”
Analysts have speculated that Sainsbury’s will face a major shake-up under its new chairman should the merger plan fail. It has been suggested that the first major move by Martin Scicluna will be an overhaul of Sainsbury’s top management team, with Chief Executive Mike Coupe possibly being replaced. He masterminded the deal after nearly two years of secret talks with Asda’s management and owner Walmart.
Investors are said to be pushing for Sainsbury’s management to cut their losses and walk away from the deal so they can focus their efforts on improving the performance of the core business.
Meanwhile, it has been suggested that a definitive CMA block would supply the catalyst for a sale of Asda by Walmart, with private equity firms the most likely bidders.
