Sainsbury’s and Asda have asked the CMA to “fast track” an investigation into their £10bn merger plans, as experts said there were huge question marks over whether the deal should be allowed to go ahead.
Mike Coupe, Sainsbury’s CEO, announced this morning that the companies would be calling for a CMA probe to go straight to a Phase 2 stage, dispensing with the normal procedure of pre-investigation talks.
The proposed merger comes less than two months after rival Tesco successfully completed its £3.7bn merger with wholesale giant Booker, after it was controversially approved by the Competition and Markets Authority (CMA).
That decision is said by some to have paved the way for the latest proposed megadeal, which would give the merged group 31.4% (compared with Tesco’s 27,6%) of the market, according to the latest figures from Kantar.
Today a spokeswoman for the CMA said: “CMA notes today’s announcement that Sainsbury’s and Asda propose to merge their operations.
“This merger is likely to be subject to review by the Competition and Markets Authority (CMA).”
The authority had said earlier today it would hold preliminary discussions with the companies before a “formal investigation” began, with those talks possibly lasting several weeks.
An initial Phase 1 review would normally last for up to 40 working days, during which time the CMA would assess whether the deal could reduce competition and choice for shoppers. After this first phase, the merger could be cleared or, if a potential reduction in competition is identified, it would be referred for an in-depth, Phase 2 investigation lasting up to 24 weeks.
However, under UK laws companies can also request to fast-track the referral of merger cases to Phase 2, as did Tesco and Booker.
A Phase 2 investigation can result in a merger being cleared, prohibited, or allowed to proceed subject to ‘remedies’ such as the sale of parts of one or both businesses.
Analysts were split on whether the deal was likely to get CMA approval.
Clive Black, of Shore Capital, told The Grocer: “I can’t think of one reason why a duopoly like this could be good for customers.
“We were surprised the Tesco and Booker deal got cleared the way it did, but this is different because at least Tesco and Booker operated in different channels and Tesco achieved 30% of the market through organic growth.
“Here we are talking about two bitter rivals in exactly the same market.”
Bruno Monteyne, senior analyst at Bernstein, described the proposed deal as a “bold gamble,” adding: “This deal could easily unravel acrimoniously if the CMA sticks to its old rules and parameters.”
However, independent analyst Nick Bubb said: “The news would have been unthinkable a couple of years ago, but the bizarre decision last year by the CMA to give the Tesco/Booker deal the go-ahead without any divestments inevitably opened the path to more sector consolidation. We therefore think there’s a pretty good chance the CMA will allow the merger to proceed in the end.”