What’s going on here?
The Competition and Markets Authority (the government department responsible for strengthening business competition) has put a stop to the proposed merger between Sainsbury’s and Asda.
What does this mean?
The proposed merger had concerned rival groups, such as Waitrose and Lidl. The CMA’s decision was based on the fact that this deal would heavily reduce competition in the UK grocery market. After the decision, the value of shares in Sainsbury’s dropped by more than 18% as investors accepted that the deal was dead in the water. However, Sainsbury’s did not back down. It argued that it structured this deal around Tesco’s takeover of Booker, which the CMA gave the green light to. But most agree that the CMA has effectively killed the deal — no matter what Sainsbury’s says.
What’s the big picture effect?
The CMA’s decision sends out a message to retailers that deals with a significant, negative impact on competition will be stopped. The Sainsbury’s and Asda merger would have created a new supermarket group holding an estimated 32% of the UK market, toppling Tesco’s position as the market leader with 28%. Among other things, the CMA considered the effect on smaller business suppliers and the potential pricing power of the new group when reaching its decision.
The CMA’s Stuart McIntosh pointed out that the Tesco-Booker clearance was not a precedent, because a retailer and a wholesaler merging is not the same as two of the country’s largest retailers merging. The CMA has clearly distinguished the Tesco-Booker merger in an effort to put a stop to companies looking to rely on it as a precedent. This makes it harder to convince the CMA to allow future mergers that rely on the Tesco deal.
Sainsbury’s was heavily relying on the merger to instil confidence in the company as it loses market share to discounters and premium brands.
It’s acquisition of Argos was a good move, but will it be enough for them to grow? Only time will tell.
Report written by Maab S.
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