Nearly 500 areas could be impacted by the merger of Asda and Sainsburys
The £15bn proposed merger of Leeds-headquartered Asda and Sainsburys could result in 463 local areas facing competition issues with store overlaps, the Competition and Markets Authority has warned.
Publishing its full phase one investigation findings, the CMA said: “At a local level, the Parties’ stores overlap in several hundred local areas across the UK. The CMA believes that the Merger may give rise to a realistic prospect of an SLC [substantial lessening of competition] in many of these local areas if Sainsbury’s and Asda are insufficiently constrained by other local competitors.
Earlier this month, the CMA announced the merger would be fast-tracked to phase two of its investigation – a more in-depth review.
In its phase one findings, the CMA dded: “The CMA believes that the Merger gives rise to a realistic prospect of an SLC [substantial lessening of competition] in 463 local areas.”
The body said that 225 Sainsbury’s stores and 238 Asda stores had been highlighted as ‘failing the filter’ in its review; which gives rise to concerns over whether stories will be sold in order to approve the merger.
The CMA said it had received a “substantial number of detailed third-party submissions” during its investigation to date.
The body added: “On a national basis, the Merger will result in the combination of two of the largest grocery retailers in the UK, bringing together the second and the third largest players in the market. The Merger will involve the combination of two of the so-called ‘Big 4’, a group of retailers that, according to the available evidence, operate similar business models and compete particularly closely with each other.
“While the CMA’s investigation to date indicates that both Parties compete, at least to some extent, with a number of retailers, the Parties’ internal documents and submissions from third parties nevertheless confirm that the Parties are an important competitive constraint to each other. The CMA therefore believes that the Merger gives rise to a realistic prospect of an SLC [substantial lessening of competition] in the retail supply of groceries instore at a national level.”
Sainsburys currently operates 606 supermarkets, 815 convenience stores, 311 petrol filling stations and an online grocery business. The supermarket giant, which last year had a turnover of £28.5bn, also operates retail banking services and owns Argos.
Asda – owned by American giant Walmart – has 584 grocery stores, 317 petrol filling stations and also operates Asda Money. Last year its turnover stood at £22.2bn.
In April, Sainsbury’s and Walmart announced the proposed combination of the Parties. The deal would see Sainsbury’s acquire the entire issued share capital of Asda from Walmart and, in turn, Sainsbury’s will issue Walmart with Sainsbury’s voting ordinary shares and non-voting shares, leading to Walmart holding 42% of the undiluted issued share capital of the merged entity.
“As a result of the Merger, the enterprises of Sainsbury’s and Asda will cease to be distinct,” added the CMA, which will investigate whether the deal would result in higher prices, less choice and increased ‘buyer power’ over suppliers.
Asda said: “We welcome the start of the Phase 2 process. The grocery market has changed significantly in the last decade and is more competitive than ever, with the rise of discount formats, online grocery and food delivery businesses.
“We look forward to working with the CMA on the Phase 2 inquiry, where we expect it to conduct a full review of the market and take these changed market dynamics into consideration.
“Customers will be the big winners from this combination. By bringing the two businesses together, we will be able to invest further in more convenient ways of shopping while lowering prices and reducing the cost of living for millions of UK households.”