J Sainsbury (LON:SBRY) has acknowledged that regulators could scupper its proposed merger with rival Asda, the Financial Times has reported. The news comes amid the Competition and Markets Authority’s (CMA) enquiry into the tie-up which is set to create Britain’s biggest grocer, surpassing current market leader Tesco (LON:TSCO).
Sainsbury’s share price fell in the previous session, giving up 0.37 percent to close at 318.90p, marginally outperforming the broader UK market, with the benchmark FTSE 100 index shedding 41.26 points to close 0.56 percent lower at 7,277.70. The group’s shares have added more than 35 percent to their value over the past year, as compared with about a 1.4-percent dip in the Footsie.
Sainsbury’s could halt Asda merger
The CMA could announce as soon as this week that it will proceed directly to an in-depth probe of Sainsbury’s tie-up with Asda and the FTSE 100 grocer’s chief executive Mike Coupe told the FT that that there were some ‘extreme scenarios’ where the regulatory remedies demanded might make it difficult to complete the deal.
“There is an EBITDA [earnings before interest, tax, depreciation and amortisation] threshold at which point either party has the right to walk away,” he pointed out. “It’s not a number of stores, it’s a level of profitability.”
Sainsbury’s boss, however, nevertheless reiterated that despite the prospect of a 24-week CMA probe and intense political scrutiny, he was confident that the deal would be approved.
“We wouldn’t be doing it unless we thought we stood a pretty good chance of getting it through,” he told the newspaper.
Analysts on FTSE 100 supermarket
Citigroup reaffirmed Sainsbury’s as a ‘buy’ last week, without specifying a price target on the shares. According to MarketBeat, the blue-chip supermarket currently has a consensus ‘hold’ rating and an average price target of 310.69p.