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Citing Price Concerns, UK Competition Watchdog Blocks Sainsbury’s-Asda Merger

Citing Price Concerns, UK Competition Watchdog Blocks Sainsbury’s-Asda Merger

The UK’s chief competition regulator, The Competition and Markets Authority (CMA), has blocked Sainsbury’s proposed £7.3 billion ($9.4 billion) takeover of Walmart-owned Asda. The rejected merger is a major setback, both to the British grocers that sought to compete against market leader Tesco, and to Walmart, which had plans to exit the UK market as it focused on newer international opportunities.

Upon the announcement, Sainsbury’s, Walmart and Asda mutually agreed to terminate the transaction.

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The CMA prohibited the merger on “extensive competition concerns” related to an expected rise in prices or a worsening of quality, range or service on both a national and local level. Sainsbury’s CEO Mike Coupe was vocal in his disagreement with the decision.

"The specific reason for wanting to merge was to lower prices for customers,” Coupe said in a statement. “The CMA's conclusion that we would increase prices post-merger ignores the dynamic and highly competitive nature of the UK grocery market. The CMA is today effectively taking £1 billion out of customers’ pockets.”

Under the terms of the planned merger, Sainsbury’s would have operated several e-Commerce sites and more than 2,600 stores under banners including Sainsbury’s, Asda and Argos. Earlier this year, Sainsbury's and Asda promised to sell 125 to 150 of their supermarkets to allow the merger to proceed, along with some convenience stores and gas stations. The grocers also said the merger would save them a combined £1.6 billion, enabling them to pledge to shoppers that they would pass on £1 billion in price cuts. The companies said they would invite an independent party to hold them to this pledge.

As of March 2019, Tesco remained the leader in UK grocery market share at 27.4%, well ahead of Asda (15.4%) and Sainsbury’s (15.3%), according to data from Kantar Worldwide. A combined Sainsbury-Asda would have taken over the top spot at 30.7%.

For now, it appears Walmart will move forward with Asda as part of its international portfolio, according to Judith McKenna, CEO of Walmart International:

"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 delivering for customers,” McKenna said in a statement. “Walmart will ensure Asda has the resources it needs to achieve that.”

As for Sainsbury’s, the supermarket chain will now have to come up with a go-forward plan for life without Asda after more than a year of preparing for the deal. The retailer had initially planned to cut prices on many popular products by as much as 10% in the wake of the merger, especially since Tesco had fortified its business by acquiring food wholesaler and convenience store operator Booker for $4.7 billion and forging a strategic alliance with France’s top grocer, Carrefour.

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