An industry body representing the UK’s food manufacturers has welcomed the decision to block a proposed merger between supermarket giants Sainsbury’s and Asda having previously voiced concerns over what it termed as a “bad deal” for its members.
Early this morning (25 April), the Competition and Markets Authority (CMA) rejected the proposal following a lengthy review on the grounds it would push up prices for consumers and reduce the quality and range of goods available on supermarket shelves. The GBP7.3bn (US$9.4bn) deal was first announced last April and attracted heavy criticism from industry groups and rivals.
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In February, the Food and Drink Federation (FDF), which represents the country’s food and soft-drink manufacturers, had agreed with the CMA’s initial assessment that such a transaction would “cause a substantial lessening of competition at both a national and local level”.
And the FDF today resounded those concerns: “Today’s CMA decision is the only logical outcome,” a spokesperson said in a statement sent to just-food. “This proposed merger was a bad deal for consumers and for food and drink manufacturers.
“Given the evidence provided by FDF members (and others) of substantial competition harms, it is hard to see how the CMA could have come to any other decision. We are pleased that the concerns of food and drink manufacturers have been heard and acted upon.”
Walmart, the US retailer that owns Asda, said they and Sainsbury’s have now agreed to terminate the transaction “despite the clear customer benefits of the proposed merger”.
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By GlobalDataBoth Sainsbury’s and Asda had made concessions to try and keep the deal on the table amid the risk the CMA would derail the plan, including proposals to close stores to head-off the competition concerns.
Sainsbury’s chief executive Mike Coupe responded in a stock exchange announcement today: “The specific reason for wanting to merge was to lower prices for customers. The CMA’s conclusion that we would increase prices post-merger ignores the dynamic and highly competitive nature of the UK grocery market.”
Meanwhile, Patrick O’Brien, a research director for the UK retail industry at data and analytics company GlobalData, said Coupe now has his work cut out having lost ground to competitors while preoccupied with trying to get the merger pushed through.
“Whatever the rights or wrongs of the CMA’s decision, he [Coupe] appears to have wasted a year chasing an impossible dream while its competitors took full advantage of its distraction,” O’Brien noted. “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.
“Asda’s performance does not give as much cause for concern as Sainsbury’s.”
He argues Walmart may not be too keen to keep hold of Asda after the failed proposition, and that while the US retailer may seek to sell the supermarket, potential buyers may be put off by the “strictness the CMA has displayed”.
Bringing in a private investor or floating the business might now be an option open to Asda, O’Brien suggests, or even a foreign bidder.
However, he ruled out the likelihood of online retailer Amazon showing any interest in such a prospect.
With the CMA’s rejection of the Sainsbury’s-Asda merger, O’Brien argues Coupe may feel disgruntled that his deal has failed, while Tesco‘s bid for US wholesaler Booker in 2017 was successful.
“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,” O’Brien said. “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 debatable, 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.”
