Competition and Markets Authority says UK shoppers and motorists would be worse off

The merger between Sainsbury’s and Asda has been torpedoed by Britain’s competition watchdog, which ruled the £7bn deal threatened to push up prices and reduce the choice and quality of products on sale in stores.

The Competition and Markets Authority (CMA) blocked the tie-up after a year-long investigation that concluded millions of shoppers and motorists would be worse off if the UK’s second and third-largest supermarkets were allowed to merge into a business bigger than Tesco, with annual sales of £51bn.

Stuart McIntosh, the chair of the CMA inquiry group, said: “It’s our responsibility to protect the millions of people who shop at Sainsbury’s and Asda every week. We have found this deal would lead to increased prices, reduced quality and choice of products, or a poorer shopping experience for all of their UK shoppers.”

Trade unions and supermarket suppliers welcomed the decision. Sainsbury’s shares, which have fallen sharply in recent months, tumbled another 5%, to 214p, leaving them on course to close at their lowest point since 1989.

The decision to ban the merger was trailed back in February when the CMA’s provisional verdict made clear that it was considering blocking it. The watchdog said the only alternative might be forcing the grocers to sell off a large number of stores or one of the Sainsbury’s or Asda brand names. In its final ruling, however, McIntosh concluded: “There is no effective way of addressing our concerns, other than to block the merger.”

Sainsbury’s chief executive, Mike Coupe, who had promised that the deal would give shoppers a 10% cut in the price of popular foods, condemned the CMA’s decision. He said blocking the deal was “effectively taking £1bn out of customers’ pockets”.

He insisted: “The specific reason for wanting to merge was to lower prices for customers.”

However, analysts accused Coupe and other Sainsbury’s directors of “arrogance” and “folly”. The fiasco has left a question mark over Coupe’s future and Sainsbury’s with a bill of more than £30m in fees for legal and financial advisers.

The CMA did not believe the £1bn price cut promise. It said its own analysis “clearly showed that, overall, the merger would reduce competition in the market and is more likely to lead to price rises than price cuts”.

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The Shore Capital analyst Clive Black said the Sainsbury’s board looked guilty of “arrogance and naivety”, with Coupe sounding “juvenile and impetuous” when things did not go his way.

Black rubbished the idea that Sainsbury’s and Asda were “social justice charities” on a crusade to cut prices for shoppers. “This was about Sainsbury’s growing earnings and Walmart wanting to get out of the UK.”

The ambitious plan to merge Sainsbury’s and the Walmart-owned Asda was unveiled a year ago and sought to create a grocer that would own close to 2,800 supermarkets, convenience stores and petrol stations. Despite its scale – it would also have been the UK’s biggest private-sector employer, with a workforce of 330,000 people – the companies believed competition concerns would be brushed aside, as a result of the rapid growth of the discounters Aldi and Lidl, and because Tesco’s 2017 takeover of Booker was given the go-ahead.

However the CMA, which since last June has been led by the former Conservative MP Andrew Tyrie, took a dim view. It conducted three large surveys of customers, polling more than 60,000 shoppers and motorists to glean their views. It also reviewed hundreds of thousands of documents submitted by the two grocers, their rivals and suppliers.

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Despite a furious backlash from Sainsbury’s and Asda when its preliminary verdict was released, the CMA stuck to its guns, reiterating its view that the proposed deal would result in a “substantial lessening of competition” across the UK, not only in the areas where Sainsbury’s and Asda stores overlap.

Sainsbury’s is eager to move on from the fiasco and will use its annual results next week to map out a growth plan to investors. It is currently being squeezed between the discounters and an improving Tesco. It is not clear what Walmart will decide to do with Asda.

Judith McKenna, the former Asda executive who now heads up Walmart’s international division, said: “While we’re disappointed by the CMA’s final report and conclusions, our focus now is continuing to position Asda as a strong UK retailer delivering for customers.”

There has been speculation that Asda could appeal to a private equity buyer.