A 13% decline in Sainsbury’s (SBRY) share price is the market’s way of saying its tie-up with Asda isn’t going to happen.
The CMA, the UK competition watchdog, has issued a statement highlighting major concerns about the proposed merger.
Without Asda to inject some life into its business, Sainsbury’s looks extremely weak as a standalone business judging by its recent performance.
Shore Capital analyst Clive Black says the CMA’s report is a ‘major blow’ to Sainsbury’s which it calls a ‘laggard’ in the British supermarket sector.
WHAT HAS HAPPENED?
There seems little chance of the deal happening judging by the language used in the CMA’s announcement.
The CMA says the proposed deal could lead to a worse experience for in-store and online shoppers across the UK and reduce competition at both a national and local level. This could lead to:
* Higher prices
* A poorer shopping experience
* Reductions in the range and quality of products offered
* Prices could rise at a large number of Sainsbury's and Asda petrol stations
The CMA’s final report will be issued by 30 April. Sainsbury’s says it will keep arguing its case in favour of the merger over the coming weeks.
The supermarket believes the merger would create significant cost savings which would allow it to lower prices.
‘It was always going to be a tough battle to convince the competition watchdog that merging two of country’s biggest supermarket chains would be a good idea,’ says Russ Mould, investment director at AJ Bell.
‘To see such resistance from the CMA at this stage in its review would suggest there is little chance of Sainsbury’s and Asda coming together.’
Shares in rival supermarket group Morrison (MRW) falls 4.4%, perhaps as investors had hoped it would pick up some stores sold by Sainsbury’s to satisfy the competition authorities. A failed merger would effectively remove that opportunity.
Tesco’s (TSCO) shares were down in early trading but soon reversed to trade 0.2% higher by 9.20am.
Theoretically a failed merger between Sainsbury’s and Asda would be great news for Tesco as it would no longer have a larger rival snapping at its heels.
