Asda and Sainsbury's merger composite shot

Sainsbury’s (SBRY) shares have tanked to a lower level than they were trading at before last year’s announcement of the blockbuster merger with Asda as the City fears the Competition & Markets Authority has killed the deal.

The shares had plunged 16.5% by late afternoon on Thursday back to 240.5p after the CMA announced this morning the merger would lead to higher prices at stores across the UK and risked a substantial lessening of competition in the sector.

After the share price drop, Sainsbury’s is now trading below the 269.8p it was at before news of the £15bn merger broke in April 2018.

Sainsbury’s shares had spiked to 309p on the news and had risen to a multi-year high of 341.8p in the summer of 2018 on market expectations the Asda deal would revolutionise its market position.

Walmart shares fell 2.8% in early trading in the US to $99.40, reflecting the likelihood the deal will collapse in the wake of the CMA’s comments, but mitigated by the relative size of Asda in its global business.

Shore Capital, which downgraded Sainsbury’s from ‘Hold’ to ‘Sell’ on the news, commented: “Whilst we need to see if Sainsbury and Asda can argue and legally challenge the CMA’s findings, the deal looks to have suffered a mortal blow.”

Bernstein’s Bruno Monteyne added: “It looks like bad news for the deal, with close to the worst possible outcome.

“People will worry that the Asda deal implied that survival on a stand-alone will be very hard. In addition some investors may raise concerns over Mike Coupe’s leadership (completely unjustified in our view).”

HSBC’s Dave McCarthy said the investment of time, cash and reputation Sainsbury’s had put into the deal would mean it failing to come off would be a major strategic blow.

“The business has been distracted and is in a worse position tactically and strategically than a year ago,” he said.

The news that the CMA is likely to object to wholesale consolidation in the supermarket sector also knocked Morrisons (MRW) back 5.3% to 227.3p. The City had hoped the Sainsbury’s/Asda deal could lead to a wider consolidation in the sector, with Morrisons primed to be targeted as the fourth largest market player.

Market leader Tesco (TSCO) edged up 0.6% after an early fall this morning as the blocking of the Asda/Sainsbury’s merger would solidify its place as the undisputed UK market leader.