Sainsbury's-Asda deal in jeopardy as UK regulator condemns plan

By Paul Sandle and Kate Holton LONDON (Reuters) - Britain's competition regulator has dealt a potentially fatal blow to Sainsbury's planned $9.5 billion takeover of Walmart's Asda, saying the supermarket groups are unlikely to be able to address its 'extensive' concerns about the deal. Shares in Sainsbury's plunged as much as 17 percent on Wednesday after the Competition and Markets Authority (CMA) said its provisional view was the deal should be blocked, require the sale of a large number of stores, or even one of the brands. 'Close to the worst possible outcome (for the companies),' said Bernstein analyst Bruno Monteyne.

Reuters February 21, 2019 00:07:37 IST
Sainsbury's-Asda deal in jeopardy as UK regulator condemns plan

SainsburysAsda deal in jeopardy as UK regulator condemns plan

By Paul Sandle and Kate Holton

LONDON (Reuters) - Britain's competition regulator has dealt a potentially fatal blow to Sainsbury's planned $9.5 billion takeover of Walmart's Asda, saying the supermarket groups are unlikely to be able to address its "extensive" concerns about the deal.

Shares in Sainsbury's plunged as much as 17 percent on Wednesday after the Competition and Markets Authority (CMA) said its provisional view was the deal should be blocked, require the sale of a large number of stores, or even one of the brands.

"Close to the worst possible outcome (for the companies)," said Bernstein analyst Bruno Monteyne.

Sainsbury's, Britain's second-biggest supermarket chain, and number three Asda agreed the deal last April, aiming to overtake market leader Tesco. They hoped their combined buying power would enable them to better compete with fast-growing discounters Aldi and Lidl, an enlarged Tesco after its purchase of wholesaler Booker and online retailers like Amazon.

If approved, the deal would create a company with annual revenue of about $66 billion, more than 2,800 stores and a grocery market share of 31.2 percent. It would also give the world's biggest retailer Walmart a way to exit Britain, one of the weakest performers in its portfolio.

The biggest proposed takeover in the UK sector for 15 years, the two groups have pitched it as a way to cut prices for customers in a 185 billion pounds-a-year ($241 billion) market.

But the CMA said it had "extensive" concerns that the deal could lead to higher prices, a poorer shopping experience and reductions in the range and quality of products offered.

It was "likely to be difficult for the companies to address" those concerns, it said, adding it was also worried prices could rise at a large number of Sainsbury's and Asda petrol stations.

The two companies issued an immediate and angry response, saying they fundamentally disagreed with the findings.

Sainsbury's boss Mike Coupe, who as the architect of the deal could come under investor pressure if it fails, added: "We will fight right the way through the process".

At 1250 GMT, Sainsbury's shares were down 15.4 percent at 243.7 pence. Smaller rival Morrisons, which could benefit from two of its rivals being distracted by a major integration and the exit of Walmart, fell 6 percent.

Tesco's shares were little changed.

MOVING GOALPOSTS

The CMA, an independent body which works to promote competition for consumers, will now seek responses and submissions from all interested parties ahead of a final report due by April 30.

It has been led since last June by former lawmaker Andrew Tyrie, who was unafraid to take on the big banks when he chaired the parliamentary committee overseeing financial services.

"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's Stuart McIntosh said.

It said the presence in any geographical location of the big four supermarkets of Tesco, Sainsbury's, Asda and Morrisons prevented the others from raising prices. While discounters Aldi and Lidl do apply their own pressure, they do not do so to the same extent because they offer a smaller range.

As a result, the CMA said were Sainsbury's and Asda to merge, the combined group could push prices higher because there would be less competition in the market. Sainsbury's and Asda accused the CMA of not understanding market forces.

The unexpectedly harsh verdict meant investors turned their focus to the standalone futures of the two groups. Sainsbury's has underperformed the wider sector in recent years, while Asda has steadily improved.

"For Sainsbury's we see this as a major blow and one that removes the merger premium and so we downgrade to SELL, noting its laggard status in British supermarketing," Shore Capital said.

Bernstein's Monteyne said there were now enough worries at Sainsbury's "to make the shares nearly uninvestable in the next few months". Jefferies analysts said Asda could be bought by a private equity group.

The CMA's objections contrast with the relatively easy passage given to Tesco's takeover of Britain's biggest wholesaler Booker, which rivals and some analysts had argued would give Tesco an almost unassailable position in UK retail.

"The CMA has moved the goalposts and its analysis is inconsistent with comparable cases," Sainsbury's and Asda said.

"We will be working to understand the rationale behind these findings and will continue to make our case in the coming weeks." Asked if Sainsbury's would consider a judicial challenge, CEO Coupe said the group would fight on.

Under the takeover plan, Walmart would receive 3 billion pounds and take a 42 percent stake in the combined business. Walmart has the option of selling down to 29.9 percent after two years and exiting completely after four.

The two groups have said they would lower prices on "everyday items" by around 10 percent, financed by cost savings from big suppliers.

Both companies have declined to say how many forced store disposals would make the deal unattractive, but a source with knowledge of the two firms' thinking has told Reuters a figure "into the hundreds" could scupper it.

UBS, Sainsbury's house broker, has said the deal's economics can absorb at least 132 store disposals and potentially dozens more.

($1 = 0.7663 pounds)

(Additional reporting by James Davey; Editing by Mark Potter)

This story has not been edited by Firstpost staff and is generated by auto-feed.

Updated Date:

TAGS:

Find latest and upcoming tech gadgets online on Tech2 Gadgets. Get technology news, gadgets reviews & ratings. Popular gadgets including laptop, tablet and mobile specifications, features, prices, comparison.

also read

Oil rises 2% as OPEC complies with production cuts
Business

Oil rises 2% as OPEC complies with production cuts

By Jessica Resnick-Ault NEW YORK (Reuters) - Oil prices strengthened on Wednesday, as OPEC and its allies were seen complying with a pact to cut oil supply in September, even as concerns loomed that recovery in fuel demand will be stalled by soaring global coronavirus cases. Early in the day crude was boosted by a bullish stock market. Even as equities whipsawed on pandemic worries, oil stayed higher, buoyed by expectations that OPEC could staunch a supply glut

Tesla's back-to-back price cuts bring sticker on U.S. Model S below $70,000
Business

Tesla's back-to-back price cuts bring sticker on U.S. Model S below $70,000

By Tina Bellon and C Nivedita (Reuters) - Tesla Inc will further cut the price of its Model S "Long Range" sedan in the United States to $69,420, the electric carmaker's chief executive, Elon Musk, announced in a tweet https://bit.ly/2H0JCP0 on Wednesday. The anticipated drop marks the second time this week Tesla has cut the price for the high-end sedan, following a 4% cut of the Model S's price in the United States on Tuesday to $71,990.

Trump cites teenaged son's bout with coronavirus in calling for schools to reopen
World

Trump cites teenaged son's bout with coronavirus in calling for schools to reopen

By Jeff Mason DES MOINES, Iowa (Reuters) - Under siege over his handling of the novel coronavirus pandemic, President Donald Trump on Wednesday cited what he said was his son's mild bout of the virus as a reason why American schools should reopen as soon as possible. Trump made the comment about his son, Barron, as the president swept into Iowa on a mission to shore up support in battleground states that he won in 2016 but is in danger of losing to Democrat Joe Biden barely three weeks before the election. First lady Melania Trump announced in a statement earlier in the day that the virus that struck both her and her husband had also infected their 14-year-old son