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Asda Sainsbury’s deal blocked on price rise worries

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25/04/2019
The UK regulator has blocked the Sainsbury’s-Asda merger, saying it could lead to higher prices in stores, online and at petrol stations.

The Competition and Markets Authority (CMA) said UK shoppers and motorists would be worse off if the deal went ahead with higher prices, plus reductions in the quality and range of products available, and a poorer overall shopping experience.

The deal would results in a “substantial lessening of competition at both a national and local level for people shopping in supermarkets.
This would mean shoppers right across the UK would be affected, not just in the areas where Sainsbury’s and Asda stores overlap”.

Stuart McIntosh, chair of the inquiry group, said: “It’s our responsibility to protect the millions of people who shop at Sainsbury’s and Asda every week. Following our in-depth investigation, we have found this deal would lead to increased prices, reduced quality and choice of products, or a poorer shopping experience for all of their UK shoppers.

“We have concluded that there is no effective way of addressing our concerns, other than to block the merger.”

The Group said it had taken into account the companies’ statement they would cut some prices, but overall, the merger would reduce competition in the market and was therefore more likely to lead to price rises than price cuts.

Reputation blow

Tom Stevenson investment director from Fidelity Personal Investing’s share dealing service said: “Confirmation that the competition watchdog has blocked Sainsbury’s planned merger with Walmart-owned Asda will surprise no-one after its forthright interim report in March made clear its deep reservations about the deal. Mike Coupe, Sainsbury’s chastened boss, will put a brave face on things as he announces results next week but this is a blow to his reputation and the company’s prospects.

“Sainsbury’s will need to deliver a convincing plan to rebuild sales and profits if it is to avoid further weakness in its battered shares, although these have already largely priced in today’s decision by the Competition and Markets Authority. The stock has not been lower since the late 1980s. Sainsbury is the sector’s laggard today, struggling to keep up with recovering Tesco and the German discounters Aldi and Lidl, which have won over the middle classes with their narrow but cheap ranges.

“The wait for better times is eased by a decent forecast dividend income but better times may be some way off.” Sainsbury’s shares were down over 6% in early trading.

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