Sainsbury's and Asda's request to the Competition and Markets Authority for a 'review of the timetable' relating to their proposed merger has been described as being "like an overworked school child asking for an extension on their homework" by a leading retail analyst.
Russ Mould, investment director at AJ Bell said that this morning's announcement from Sainsbury's indicates just how challenging it was going to be to get "such a big and complex transaction over the line".
Both this update, and "the CMA’s previous indication that the deal could result in higher prices and a lower quality of service for consumers do not offer the most encouraging signs on how things might progress from here,"Mould wrote.
“Investors may begin to question Sainsbury’s management more strongly on the merits of pressing ahead with the tie-up, given the demands it places on their time and resources."
Reputational Damage
Mould also suggested that should the CMA rule against the planned merger, then the credibility of Sainsbury's and Asda will be "in tatters", at least from an M&A perspective.
“Scale is important in the groceries sector but given the structural challenges faced by the industry, size certainly isn’t everything. Maybe Sainsbury’s would be better off staying smaller but getting smarter in the way it responds to the needs of shoppers.”
Short-Term Negative
Elsewhere, Bruno Monteyene of Bernstein Research described the request for an extension as "a short-term negative. Investors are likely to think along the lines of: 'Sainsbury's would be happy with the speed if it went in the right direction'. We agree with this point of view and expect this to dampen the sentiment on the name in the near-term.
"Whilst Sainsbury's stresses this review is about process, rather than content, it still implies to us that Sainsbury's is not satisfied with the combination of both."
In a statement this morning, Sainsbury's said that both it and Asda believed that 'the current timetable does not give the Parties or the CMA sufficient time to provide and consider all the evidence given the unprecedented scale and complexity of the case'.
It asked the CMA for an additional 11 working days over the Christmas period to 'respond to a large amount of material recently provided to us'.
© 2018 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: European Supermarket Magazine.
