UK regulator to give final verdict on Sainsbury's-Asda deal
today Apr 25, 2019
Britain's competition regulator will publish its final report on supermarket group Sainsbury's takeover of Walmart-owned rival Asda on Thursday, with most analysts and competition lawyers seeing little chance of the deal proceeding.
Sainsbury's own share price - down 19 percent over the last three months - has also indicated an expectation that the Competition and Markets Authority (CMA) will either block the 7.3 billion pound takeover outright or conditionally approve it subject to remedies that would be so severe as to make the deal unpalatable.
Sainsbury's and Asda agreed last April to combine their businesses, aiming to overtake market leader Tesco. It would also have given Walmart a way to exit Britain, one of the weakest performers in its global portfolio.
However, the CMA delivered a damning provisional report in February, saying the combination could lead to higher prices and should either be blocked entirely or require the sale of a significant number of stores, or even one of the brands.
The CMA acknowledged the two companies were unlikely to be able to address its concerns.
The implications of the deal failing are major. Some analysts believe Sainsbury's will have to undergo a major shake-up that could see new chairman Martin Scicluna part company with Chief Executive Mike Coupe, the architect of the deal and the group's boss since 2014.
If one potential exit route from Britain for Walmart was blocked, the U.S. group might instead consider a stock market listing (IPO) of Asda or try to sell it to private equity.
Sainsbury's and Asda said last month the CMA's analysis was "fundamentally flawed" but said they were willing to sell 125-150 stores to get their deal over the line - a number well short of the over 300 stores the CMA had said it was looking for.
"While it is certainly possible that the CMA will make subtle changes to the views it outlined in its provisional report,...the CMA’s proposed remedies – and associated conditions – would have to be made radically less restrictive in order for the merger to still make financial sense," said analysts at Barclays.
"From a practical perspective, such a radical change in view from the CMA seems unlikely - not least for reputational reasons of its own."
Competition lawyers said that for the CMA to change its view it would have to fundamentally revise its analysis of Britain's grocery market. The CMA rarely dramatically changes its findings between provisional and final reports.
If the regulator blocks the deal Sainsbury's and Asda still have the option of challenging the CMA's ruling through the Competition Appeal Tribunal, a specialist judicial body, which can throw it back to the CMA.
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