As was widely expected, the UK’s Competition and Markets Authority (CMA) has blocked Sainsbury’s proposed takeover of rival Asda.
"We have concluded that there is no effective way of addressing our concerns, other than to block the merger," commented Stuart McIntosh, chair of the CMA inquiry group.
Here’s how leading retail analysts viewed the CMA’s announcement:
Russ Mould, AJ Bell
“The Competition and Markets Authority recently made it fairly clear that Sainsbury’s had little chance of merging with Asda. And now we have confirmation the deal is off.
“Management may argue they were distracted by the deal talks but that would be a poor excuse. They have taken their eye off the ball and lost focus on how the day-to-day business is run.
“Fundamentally the business has lost its way and doesn’t know how to make its proposition stand out in a crowded market. Service standards have slipped and customers have voted with their feet by shopping elsewhere.
“Sainsbury’s chief executive Mike Coupe needs to have a radical Plan B to save the business otherwise his days are numbered with the supermarket.
“Coupe was caught singing ‘We’re in the Money’ following the initial news that Sainsbury’s planned to merge with Asda. Today you’re more likely to hear Bonnie Tyler blasting down the aisles of Sainsbury’s supermarkets. Coupe is holding out for a hero: they’ve got to be strong and they’ve got to be fast otherwise Sainsbury’s problems will just get worse.”
Richard Curry, Rapleys
“The problem Sainsbury’s and Asda faced is that there is a clear lack of credible competition for the CMA to turn to, and fewer still who would be interested in the stores that would have needed to have been disposed of. Particularly when you factor in the fuel retail element, the only two alternatives that offer the same product range and shopping experience are Tesco and Morrisons – who are unlikely to be interested in enough of the large format stores which might have made a difference to the CMA.
“Walmart will now be actively reviewing their strategy as they clearly will still want to offload Asda. There will likely be many suitors waiting in the wings, from private equity to retail joint ventures. The Asda brand remains strong and the stores, while many will require updating, will be a tempting prospect for many investors who may, for instance, seek to rationalise the portfolio and cut and splice the space to generate maximum value.
"There have been plenty of retailers who have used the media interest in the proposed merger to push themselves forward as ready to take advantage should stores come on to the open market or if investor landlords are seeking viable retail tenants for ex-Asda stores.”
Patrick O’Brien, GlobalData
“The CMA’s decision to block the Sainsbury’s – ASDA merger puts the heat on Sainsbury’s CEO Mike Coupe. Whatever the rights or wrongs of the CMA’s decision, he appears to have wasted a year chasing an impossible dream while its competitors took full advantage of its distraction. Its results over the last year have been poor, with store standards falling noticeably, and it must now refocus on retail basics rather than chase another big acquisition.
“One of the key mistakes Coupe made was in failing to offer any assurances on price cuts until the CMA’s devastating provisional findings in February: it built the rationale for the merger on the rather vague notion that it would reduce prices by 10% by putting pressure on major suppliers, though it didn’t make it clear how many products this would include. It only made some assurances of audited price investment later, but this might have had more sway if it had offered them at the start.
“The confidence Coupe placed in getting the deal past the CMA in light of its previous – generous – decision to allow Tesco to buy Booker looks like a bad misjudgement now. Mike Coupe may feel hard done by, but the CMA made clear that the Tesco-Booker deal was passed because it considered the acquisition to be a vertical one, by a retailer of a wholesaler, and so viewed that the combination did not significantly damage the competitiveness of either market.
"The rights and wrongs of that decision are debateable but it looks difficult for Coupe to argue that the CMA’s decision then is in direct contradiction of its decision regarding ASDA/Sainsbury’s now.”
Catherine Shuttleworth, Savvy
“The comments from Stuart McIntosh of the CMA this morning - that it would be difficult to track prices post the proposed merger - is completely unbelievable. It has never been easier to track supermarket prices. Additionally Sainsbury had committed to a transparent audit of pricing by a third party post any merger.
“The more we hear from the CMA the more we should be concerned that they are not working in the best interests of consumers and clearly do not understand the market dynamics of the UK grocery sector.”
David Beadle, Moody's
“The cancellation of the Sainsbury/Asda merger maintains the status quo in the already highly competitive UK grocery market. We think it’s credit positive for other grocers as if the merger had proceeded we believe the enlarged group would have looked to reduce prices. This would have forced competitors to react, squeezing margins.”
© 2019 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: The European Supermarket Magazine.
