Britain's competition regulator is likely to insist on store disposals to clear Sainsbury's proposed £7.3 billion takeover of rival Asda, its CEO has told lawmakers.
Sainsbury's and Walmart-owned Asda need the Competition and Markets Authority (CMA) to approve their combination without it demanding that they sell off so many stores that it removes the rationale for the deal.
Condition Of Clearance
Sainsbury's chief executive, Mike Coupe, was asked about the prospect of store disposals being insisted on as a condition of clearance when he appeared in front of the lower house of Parliament's Environment, Food and Rural Affairs Committee.
"I think it is likely," Coupe said, adding that the CMA would not force store closures.
He was asked what the figure was for the number of markets in Britain in which there is both a Sainsbury's and an Asda store.
"It will be more than 20 and [fewer] than 100, would be my guess," Coupe said.
Asked if it would be more than 50, he said, "It depends on how you define the market – probably more than 50, but [fewer] than 100."
Sainsbury's and Asda have declined to say how many store disposals would make the deal unattractive, however, a source with knowledge of the situation has told Reuters that a figure "into the hundreds" would likely kill the deal.
Increased Scrutiny
The appearance of Coupe and his counterpart at Asda, Roger Burnley, in front of lawmakers represents a cranking-up of the scrutiny of the shock tie-up, which was announced in April.
If it goes ahead, the combined group will overtake Tesco as Britain's biggest supermarket group, with a grocery market share of 31.1%, according to the latest industry data.
Last month, the CMA started a preliminary probe into the deal, ahead of a formal investigation.
On Monday, it said that submissions received from rivals and suppliers had highlighted the threat to competition and raised concerns about the impact of the deal on suppliers and the potential knock-on effect on consumers.
The combined group is seeking synergies of at least £500 million, £350 million of which would come from savings when buying from suppliers.
Sainsbury's and Asda argue that suppliers will be able to grow their businesses as the combined group grows. They have said that the deal will enable prices to be lowered by about 10% "on many of the products customers buy regularly".
'Mickey Mouse Figures'
Committee chair and Conservative lawmaker Neil Parish said that Coupe and Burnley had provided "Mickey Mouse figures" to the committee, as regards the impact on suppliers, and accused Burnley of talking "baloney".
Both executives told the lawmakers that there was a misconception on the issue of suppliers.
They said that the combined group was not looking to lower the cost prices of the goods that it sells across the board by 10%.
"The money will come from the largest suppliers, the 150 suppliers who account for around 78% of our turnover [...] brand manufacturers who are hugely profitable, quite often not UK-based PLCs," said Coupe.
He said that the savings would be invested in lowering the prices of items like tinned tomatoes, pasta, detergents and toilet rolls.
"I can categorically say that the synergy benefits on which the combination is predicated are not based on making 10% savings from individual suppliers," added Burnley.
News by Reuters, edited by ESM. Click subscribe to sign up to ESM: European Supermarket Magazine.
