You are here: Home - Investing - Experienced Investor - News -

Regulators main hurdle to Sainsbury’s/Asda deal, say analysts

0
Written by:
30/04/2018
Analysts have given a cautious welcome to the proposed tie-up between Sainsbury's and Asda, but admit getting through the competition watchdog will still be a major hurdle.

The two groups announced a merger this morning, creating a new supermarket giant with combined revenues of over £50bn. No store closures are planned and the group expects to retain the Sainsbury’s and Asda brands. However, it expects to use its stronger purchasing power to deliver lower prices, up to 10%, on many frequently-bought products.

Sainsbury’s shares spiked up to 20% higher on the news.

Joshua Mahony, market analyst at IG, said: “While some investors shudder at the prospect of cumbersome mergers that benefit leadership rather than shareholders, it is clear that markets consider the possibility of a deal between Sainsbury’s and Asda as carrying substantial benefits for both firms. There would be clear synergies and efficiencies to merging both companies, with supply chain and logistics benefits driving down costs. The big question is whether such a deal would drive up costs amid a lessening of competition, or allow for lower prices as the two.”

However, he said there was still a major hurdle to overcome in the form of a likely review from the UK’s competition watchdog, the Competition and Markets Authority (CMA).

Laith Khalaf, senior analyst at Hargreaves Lansdown, agreed the stance of the CMA will be critical to the viability of the deal. He added: “The recent approval of Tesco’s takeover of Booker group may give some cause for confidence, though that deal was a vertical rather than a horizontal integration, with neither company competing directly in their key markets.

“That’s not the case for Sainsbury’s and Asda, though the fact that they have complementary regional footprints will mitigate in their favour. The competition authorities will also note that the combined supermarket will still only have around the market share of the industry leader, Tesco, in a sector where dominance has been brutally eroded by Aldi and Lidl. If Sainsbury’s can demonstrate the merger will create lower prices for customers, that will help too.”

He believes the prospect of Sainsbury’s, Asda, and Argos working together, with Walmart (owner of Asda) chipping in too, would be a ‘pretty powerful combination’.

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

Are you a first-time buyer looking for a mortgage?

Look no further, get the help you need by searching for your perfect mortgage

A guide to switching energy provider

All you need to know about switching from one energy supplier to another.

Which ISA is right for you? A round up of the six products available in 2017

From cash to innovative finance to lifetime, here's our guide to the ISA products available to savers this yea...

Guide to buy-to-let tax changes

In late 2015, former Chancellor George Osborne announced a range of  tax measures aimed at landlords, which t...

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

Five fund tips for a 0.25% interest rate environment

With interest rates stuck at a record low 0.25% and expectations rates could fall to close to zero, here are ...

Protecting family wealth: 10 tips for cutting inheritance tax

Inheritance tax - sometimes known as 'death tax' - can cause even more heartache for bereaved families. But th...

Travel insurance: Five tips to ensure a successful claim

Ahead of your summer holiday, it’s important to make sure you have the right level of travel cover or you co...

Investing your money

Alliance Trust Plc gives you smart insight into how to invest your money

Money Tips of the Week

Read previous post:
house prices
Borrowers prepared for potential base rate rises

Homeowners are largely unconcerned by the potential of a base rate rise in the next year although house price optimism...

Close