In this article Hannah takes a look at “an interesting story in the news”. One for that horrible commercial awareness question. Enjoy!
It was announced on 25th April that the Competition and Markets Authority (CMA) has blocked the merger between Sainsbury’s and Asda on the grounds that it would increase prices for consumers and lead to a reduction in the quality and variety of produce on sale.
The £7 billion deal was proposed in April 2018. A merger of the two businesses would have created a larger business than Tescos to become the UK’s largest retail grocer. The retailer would have 2,800 supermarkets, convenience stores and petrol stations with sales turnover totalling £51 billion per year. In March 2018, Sainsbury’s had a market share of 15.8% and Asda of 15.6%. The merger would have created a combined market share of 31.4% which is larger than Tescos’ market share of 27.6%.
The chief executive of Sainsbury’s, Mike Coupe, had promised that the merger would lead to a 10% cut in food prices, equating to roughly £1 billion in savings for customers. This would enable the new business to more effectively compete with the discount stores Aldi and Lidl which are both German and have been increasing their market share in the past decade.
Following a year of investigation, the CMA concluded that: “overall, the merger would reduce competition in the market and is more likely to lead to price rises than price cuts”.
Mike Coupe had said that it would be possible to sell off some of stores if required by the competition authorities, to reduce the market share. However, the CMA’s final ruling made it clear that it believed there was no way of addressing the competition concerns except blocking the merger entirely.
Sainsbury’s share price has been falling in the past couple of months and it fell another 5% to 214p after the announcement. It now looks likely that the shares may reach their lowest price since 1989. Sainsbury’s is currently in a challenging position between the discounting supermarkets (such as Aldi and Lidl) and Tesco, which is improving. It will be looking to show investors a growth plan after its annual results are revealed.
It is unclear what will happen to Asda following the final decision. Asda is owned by America’s Walmart which has indicated that it would like to get rid of Asda. It is possible that Asda may try to find a private equity buyer or list on the stock market.