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Walmart’s deal to sell Asda to Sainsbury’s in peril

U.K. regulator calls for blockage of merger or major divestitures

Russell Redman

February 20, 2019

4 Min Read
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Walmart’s $10 billion agreement to sell its Asda Group Ltd. grocery chain in the United Kingdom to J Sainsbury plc has hit a big roadblock.

The U.K.’s Competition and Markets Authority (CMA) said Wednesday that it has found “extensive competition concerns” with the proposed Asda-Sainsbury’s merger. To address these issues, CMA recommended that the deal be blocked or that the merger partners be required to divest a large number of stores or either the Asda or Sainsbury’s brand.

In announcing the transaction last April, Walmart and Sainsbury’s said the Asda-Sainsbury’s combination would lead to lower prices, improved product selection and quality, and more shopping convenience for U.K. consumers. Yet the CMA’s investigation, launched in mid-May and now in its second phase, counters those purported benefits of a merged Asda and Sainsbury’s.

“These are two of the biggest supermarkets in the U.K., with millions of people purchasing their products and services every day,” Stuart McIntosh, chairman of the CMA inquiry group conducting the investigation, said in a statement. “We have provisionally found that, should the two merge, shoppers could face higher prices, reduced quality and choice, and a poorer overall shopping experience across the U.K. We also have concerns that prices could rise at a large number of their petrol stations.”

Related:Walmart to sell Asda subsidiary to Sainsbury’s

Under the merger agreement, Walmart would hold 42% of the combined company, which would retain the Sainsburys and Asda brands and become the U.K.’s biggest supermarket retailer, surpassing Tesco plc.

The merged entity would have a network of more than 2,800 Sainsbury’s, Asda and Argos stores — including supercenters, superstores, supermarkets and convenience stores — plus some of the U.K.’s most-visited retail websites, for a total of 47 million weekly customer transactions. At the time of the merger announcement, Sainsbury’s said the combined company’s scale would enable it to lower prices by 10% on many products that customers buy regularly.

Sainsbury’s and Asda blasted the CMA’s provisional findings as out of touch with the current retail grocery market and consumers.

“These findings fundamentally misunderstand how people shop in the U.K. today and the intensity of competition in the grocery market. The CMA has moved the goalposts, and its analysis is inconsistent with comparable cases,” Sainbury’s and Asda said in a joint statement. “Combining Sainsbury’s and Asda would create significant cost savings, which would allow us to lower prices. Despite the savings being independently reviewed by two separate industry specialists, the CMA has chosen to discount them as benefits.”

The CMA said a combined Asda-Sainsbury’s “could lead to a substantial lessening of competition at both a national and local level,” especially in areas where the chains’ stores overlap. The agency also expressed concerns that the merger could hike prices and reduce the quality of service for online customers and inflate costs at more than 100 locations where Sainsbury’s and Asda fuel stations overlap.

Recommended options to address such concerns — nixing the deal, selling off a significant number of stores or shedding one of the retail banners — would “recreate the competitive rivalry lost through the merger,” the CMA said. Still, the agency acknowledged that “it is likely to be difficult for the companies to address the concerns it has identified.”

“These are our provisional findings, however, and the companies and others now have the opportunity to respond to the analysis we’ve set out today,” McIntosh commented. “It’s our responsibility to carry out a thorough assessment of the deal to make sure that the sector remains competitive and shoppers don’t lose out.”

The CMA plans to issue its final report on the merger by April 30, following a period of public comment and notice of possible competitive remedies running through early March.

“We are surprised that the CMA would choose to reject the opportunity to put money directly into customers’ pockets, particularly at this time of economic uncertainty,” Sainsbury’s and Asda stated. “We will be working to understand the rationale behind these findings and will continue to press our case in the coming weeks.”

Walmart acquired Asda in 1999 for $10.8 billion. In recent years, U.K. grocery retailers have been engaged in aggressive price wars that have pared their margins. The entry of German hard-discount grocers Aldi and Lidl has further intensified competition, turning up the heat on the value strategy driven by Asda under Walmart.

About the Author

Russell Redman

Senior Editor
Supermarket News

Russell Redman has served as senior editor at Supermarket News since April 2018, his second tour with the publication. In his current role, he handles daily news coverage for the SN website and contributes news and features for the print magazine, as well as participates in special projects, podcasts and webinars and attends industry events. Russ joined SN from Racher Press Inc.’s Chain Drug Review and Mass Market Retailers magazines, where he served as desk/online editor for more than nine years, covering the food/drug/mass retail sector. 

Russell Redman’s more than 30 years of experience in journalism span a range of editorial manager, editor, reporter/writer and digital roles at a variety of publications and websites covering a breadth of industries, including retailing, pharmacy/health care, IT, digital home, financial technology, financial services, real estate/commercial property, pro audio/video and film. He started his career in 1989 as a local news reporter and editor, covering community news and politics in Long Island, N.Y. His background also includes an earlier stint at Supermarket News as center store editor and then financial editor in the mid-1990s. Russ holds a B.A. in journalism (minor in political science) from Hofstra University, where he also earned a certificate in digital/social media marketing in November 2016.

Russell Redman’s experience:

Supermarket News - Informa
Senior Editor 
April 2018 - present

Chain Drug Review/Mass Market Retailers - Racher Press
Desk/Online Editor 
Sept. 2008 - March 2018

CRN magazine - CMP Media
Managing Editor
May 2000 - June 2007

Bank Systems & Technology - Miller Freeman
Executive Editor/Managing Editor
Dec. 1996 - May 2000

Supermarket News - Fairchild Publications
Financial Editor/Associate Editor
April 1995 - Dec. 1996 

Shopping Centers Today Magazine - ICSC 
Desk Editor/Assistant Editor
Dec. 1992 - April 1995

Testa Communications
Assistant Editor/Contributing Editor (Music & Sound Retailer, Post, Producer, Sound & Communications and DJ Times magazines)
Jan. 1991 - Dec. 1992 

American Banker/Bond Buyer
Copy Editor
Oct. 1990 - Jan. 1991 

This Week newspaper - Chanry Communications
Reporter/Editor
May 1989 - July 1990

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