Sainsbury’s share price sinks as CMA flags ‘extensive competition concerns’ over Asda deal

on Feb 20, 2019
Updated: May 19, 2020
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Shares in J Sainsbury (LON:SBRY) have taken a hit this morning as the Competition and Markets Authority (CMA) pointed to ‘extensive competition concerns’ over the supermarket’s proposed deal with Walmart’s Asda. The watchdog further noted that it thinks it is ‘likely to be difficult’ for the parties to address its concerns.

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As of 09:32 GMT, Sainsbury’s share price had lost 13.95 percent to 247.75p. The shares are weighing on the broader UK market, with the benchmark FTSE 100 index currently standing 0.09 percent higher at 7,185.86 points.

‘Extensive competition concerns’

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The CMA unveiled its provisional findings on the Sainsbury’s-Asda merger today, saying that the proposed deal could lead to higher prices, a poorer shopping experience, and reductions in the range and quality of products offered. The watchdog further said that it had concerns that prices could rise at a large number of their petrol stations.

The CMA noted that the options for addressing its concerns included blocking the deal or requiring the merging companies to sell off a significant number of stores and other assets. The watchdog, however, cautioned that its current view was that it was “likely to be difficult for the companies to address the concerns”.

Sainsbury’s issued a short statement, saying that it ‘fundamentally’ disagreed with the findings which, the grocer argues, “misunderstand how people shop in the UK”.

Analysts weigh in on findings

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“These provisional findings deliver a hammer blow to the potential tie-up between Sainsbury’s and Asda,” Richard Lim, chief executive at Retail Economics, commented, as quoted by the BBC, adding that the “scope of any potential recommendations in the final stage may be too much to swallow for the deal to survive”.

Proactive Investors meanwhile quoted Hargreaves Lansdown analyst  Laith Khalaf as commenting that the “supermarkets will now have to bend over backwards if they want to proceed with the merger, and even then, wouldn’t be guaranteed a favourable ruling from the CMA”.

UBS had previously argued that the merger’s economics could absorb at least 132 store disposals and potentially dozens more.

As of 10:19 GMT, Wednesday, 20 February, J Sainsbury plc share price is 247.75p.

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