Sainsbury's and Asda have called off their planned £13bn merger after it was formally blocked by the competition regulator on the grounds it would lead to higher prices.

The pair admitted defeat after the Competition and Markets Authority (CMA) completed its final report on the tie-up - first announced a year ago - saying it had not shifted from its view that shoppers and motorists using their petrol stations would be worse off.

A merger would have created the largest player in the UK grocery sector, claiming more market share than the current leader Tesco.

The regulator said its concerns included suppliers being squeezed by their dominance.

Image: Tesco's current market dominance would have been erased by the tie-up

Sainsbury's and Asda had argued that their combined buying power would have left customers up to 10% better off.


They had also offered to sell 150 of their stores to help address the CMA's concerns about weaker competition.

But Stuart McIntosh, who chaired the CMA inquiry, said no remedies would have been sufficient in what amounted to a damning critique of the proposed tie-up.

Stuart McIntosh, who chaired the CMA inquiry, on why the deal was blocked

He said: "It's our responsibility to protect the millions of people who shop at Sainsbury's and Asda every week.

"Following our in-depth investigation, 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.

"We have concluded that there is no effective way of addressing our concerns, other than to block the merger."

The ruling prompted a bitter response from the chains, with Sainsbury's share price falling nearly 5% on Thursday to leave it more than 18% down in the year to date.

Its chief executive, Mike Coupe, said: "The specific reason for wanting to merge was to lower prices for customers.

Image: Mike Coupe (CEO, Sainsbury's), Judith McKenna (CEO of Walmart) and Roger Burnley (CEO of Asda) are pictured at the merger launch last year

"The CMA's conclusion that we would increase prices post-merger ignores the dynamic and highly competitive nature of the UK grocery market.

"The CMA is today effectively taking £1bn out of customers' pockets."

Asda said it was "disappointed" by the decision, while Judith McKenna, chief executive of its US parent firm Walmart, added: "Our focus now is continuing to position Asda as a strong UK retailer delivering for customers.

"Walmart will ensure Asda has the resources it needs to achieve that."

Asda is not listed separately in the UK so the market reaction focused on Sainsbury's - particularly its boss - amid suggestions it had taken its eye off the ball while fighting its corner in the merger inquiry.

Neil Wilson, chief market analyst at Markets.com, said there was now speculation Mr Coupe would leave the firm after the failure of his argument that customers would have benefited.

He wrote: "No one, least of all the CMA, fell for it. Will Coupe stay? I doubt it, this could well be the time for Coupe to exit."

Analysts at the Jefferies investor service said: "Today's confirmation that the CMA has blocked the Sainsbury/Asda merger puts the focus back on Sainsbury's stand-alone value.

"This results in a cut in our price target from 230p to 200p, as we have limited visibility over how Sainsbury's intends to confront accelerating market share losses to Tesco."