UK regulator blocks Sainsbury’s €8.4bn Asda takeover

Sainsbury and Asda dropped their £7.3 billion (€8.44 billion) bid to create the UK's largest supermarket chain after antitrust authorities formally blocked the deal.

The companies quickly raised the white flag after the Competition and Markets Authority (CMA) formally rejected the combination of the country’s second- and third-largest grocery chains. The regulator had rejected Sainsbury’s offer to roll out £1 billion in price cuts and sell as many as 150 stores.

"The CMA's conclusion that we would increase prices post-merger ignores the dynamic and highly competitive nature of the UK grocery market," Sainsbury chief executive Mike Coupe said in a statement. "The CMA is today effectively taking £1 billion out of customers' pockets."

The CMA decision is a significant blow to Mr Coupe, who has staked his career on driving forward a deal he said would be "transformational". Sainsbury lacks the buying power of market leader Tesco and is operating in a highly competitive industry that's been overhauled by discounters Aldi and Lidl and online food operations.

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Sainsbury, which has 13 outlets in Northern Ireland, saw its shares fall as much as 5.1 per cent after the report. Since the deal was announced a year ago, they have fallen by nearly a third.

In its final report on Thursday, the regulator held off making major changes to its preliminary findings even after the grocers accused officials of making errors in their analysis and said they were duped about a rival’s intentions.

The CMA did tweak its analysis slightly to show the combination would hurt competition in 537 local areas, down from its prior calculation of 629 problematic neighbourhoods.

“We have concluded that there is no effective way of addressing our concerns, other than to block the merger,” Stuart McIntosh, who oversaw the investigation, said in a statement.

Mr Coupe has previously said that combining with Asda would not only help Sainsbury meet looming challenges but would also deliver cost benefits for consumers. The decision to call the deal off leaves him facing a steep challenge to convince the market that its standalone strategy can succeed.

Asda resources

Walmart promised to continue to invest in its Asda unit, which has 17 stores in Northern Ireland, after the decision.

“While we’re disappointed by the CMA’s final report and conclusions, our focus now is continuing to position Asda as a strong UK retailer,” Judith McKenna, chief executive of Walmart International, said in a statement. “Walmart will ensure Asda has the resources it needs to achieve that.”

In its meetings with the CMA, Sainsbury lawyers argued the regulator made basic errors in its analysis of Asda’s store network and was duped about its rival Marks and Spencer’s plans to enter the online grocery market, following its deal with Ocado.

But lawyers said the sheer size of the deal meant that it would always face significant regulatory hurdles. The antitrust review had been filled with tension, with Sainsbury going to court last year to get more time to respond to some of the regulator’s requests for information.

"It was always a challenging transaction, it required a leap of faith from the regulator that the market had already kicked in a new direction," said Stephen Smith, a partner at Bristows LLP in London.

Sainsbury’s market share has fallen 0.6 per cent in the past 12 months, causing it to lose its place as Britain’s second-largest supermarket to Asda last month. As of September, Sainsbury’s had spent £17 million on legal and banking fees, according to its half-year results. Nearly £2 billion has been wiped off its market value since the merger was announced last year. – Bloomberg