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Sainsbury's loses £1bn in value as Asda purchase looks doomed

Sainsbury’s planned takeover of Walmart’s Asda was first announced in April 2018. (Photo by Chris J Ratcliffe/Getty Images)
Sainsbury’s planned takeover of Walmart’s Asda was first announced in April 2018. (Photo by Chris J Ratcliffe/Getty Images)

Roughly £1bn was wiped off the value of Sainsbury’s this morning as it seemed the planned Sainsbury’s-Asda takeover deal had gone rotten.

The UK government’s top competition watchdog – the Competition and Markets Authority (CMA) – ruled on Wednesday morning that the proposed grocery deal would be bad for shoppers and push up prices. The regulator has the ability to block the £7.3bn ($9.5bn) takeover, which was designed to create a massive shopping giant with enough heft to challenge industry leader Tesco (TSCO.L).

“The proposed deal could lead to a worse experience for in-store and online shoppers across the UK through higher prices, a poorer shopping experience, and reductions in the range and quality of products offered,” the CMA said in a written statement.

The regulator said it was “likely to be difficult for the companies to address the concerns it has identified.”

A final CMA ruling on the deal is expected by the end of April.

Shares in Sainsbury’s (SBRY.L) fell by about 16% after the decision, putting it at the bottom of the FTSE 100 index (^FTSE). The company’s market capitalisation fell to £5.3bn from £6.3bn.

Shares in American retail giant Walmart (WMT), which owns Asda, were not making any big moves in premarket trading.

Shares in Sainsbury’s crashed on Wednesday morning by about 16% after the CMA findings were published. Image: Yahoo Finance UK
Shares in Sainsbury’s crashed on Wednesday morning by about 16% after the CMA findings were published. Image: Yahoo Finance UK

Sainsbury’s and Asda said they disagreed with the CMA’s findings, and Sainsbury’s CEO Mike Coupe called the report “outrageous” in an interview with the BBC.

“We fundamentally disagree with the provisional findings,” the companies said in a joint statement. “These misunderstand how people shop in the UK today and the intensity of competition in the grocery market … Combining Sainsbury’s and Asda would create significant cost savings which would allow us to lower prices.”

Tesco dominates the UK grocery scene with nearly 22% market share, according to annual data from research firm Euromonitor. Sainsbury’s is the second largest with just over 12% of the market, followed by Asda with 11%.

Those market share figures have remained largely stable for years, but smaller competitors such as Aldi have been gaining ground. Aldi Group now has 6.5% of the market, making it the fifth largest grocery retailer, just behind Morrisons.

The CMA said it would allow stakeholders to challenge its provisional findings and provide further evidence before it makes its final decision on whether to kill the takeover.

Analysts are not optimistic.

Although the CMA might conceivably be persuaded to think differently … our central assumption would be that this is unlikely to happen,” said analysts at Barclays. “We therefore assume that the proposed merger will have to be abandoned – even though Sainsbury’s and Asda may not openly accept the inevitability of that outcome at this stage.”

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