Sainsbury’s-Asda tie-up could push up prices, warns watchdog

Sainsbury's and Asda logos

Sainsbury's and Asda logos

The CMA's current view is that it is likely to be hard for the companies to address the concerns it has identified.

Sainsbury's boss told the BBC the findings were "outrageous".

The Competition and Markets Authority has today revealed it has "extensive" concerns over the proposed merger.

Stuart McIntosh, chairman of the independent inquiry group carrying out the CMA investigation, said: 'These are two of the biggest supermarkets in the United Kingdom, with millions of people purchasing their products and services every day.

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.

But Sainsbury's chief executive Mike Coupe described the CMA's analysis as "fundamentally flawed" and said the firm would be making "very strong representations" to it about its "inaccuracy and lack of objectivity".

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

Unfortunately for them, the light at the end of the tunnel turned out to be an oncoming train.

It will publish its final report by April 30, having recently extended the original deadline by nearly two months.

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The Sainsbury's and Asda merger could be at risk after the competition watchdog warned it could lead to higher prices and reduced quality of their products.

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

Another is to potentially offload either the Sainsbury's or Asda brand.

As well as increasing prices and reducing quality online and in store, the watchdog also fears the move could see fuel prices increased at more than 100 locations where Sainsbury's and Asda petrol stations overlap.

The deal would create the UK's biggest supermarket chain, a business accounting for £1 in every £3 spent on groceries, with a 31.4% market share and 2,800 stores. Despite the savings being independently reviewed by two separate industry specialists, the CMA has chosen to discount them as benefits.

And in a massive blow to Asda and Sainsbury's, it states that one of the only ways to push the merger through could be to sell off a "significant" number of stores and potentially offload either the Asda or Sainsbury's brand as a whole.

Sainsbury's and Asda would also have to find a suitable buyer for the assets on sale, one who is big enough to provide proper competition in the eyes of the regulator, he added.

Laith Khalaf, senior analyst at Hargreaves Landsdown, said:"The supermarkets will now have to bend over backwards if they want to proceed with the merger, and even then, wouldn't be guaranteed a favourable ruling from the CMA".

The CMA's report suggests the merger is likely to be blocked to retain the current competition in the grocery sector, stating it will be "difficult" for the concerns to be resolved so the deal can go ahead.

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