The UK’s competition watchdog has confirmed it is looking into the proposed merger between supermarkets Asda and Sainsbury’s, as it invites parties to comment on if they think the deal will harm competition.
As part of the deal, which was announced at the end of last month, Asda owner Walmart will receive £2.975 billion in cash in return for a 42% stake in the enlarged business.
Sainsbury’s and Asda are currently the UK’s second and third biggest supermarkets and the merger would create a business larger than the current market leader Tesco.
The Competition and Markets Authority (CMA) said the information to comment stage is the first part of its information-gathering process.
It said: “The CMA is also likely to proactively contact companies and organisations that are active in the markets affected by the proposed merger, or have valuable insights or evidence that could assist the CMA’s investigation, such as suppliers, competitors, industry bodies and consumer organisations.”
Jonatha Branton, head of EU and competition at law firm DWF, said: ““The Competition and Markets Authority’s investigation into the proposed merger between Sainsbury’s and Asda – two of the biggest players in the grocery market – will be off the scale.
“The watchdog will want to verify the companies’ claims that efficiencies created by the deal will result in cheaper prices and better services for customers. It will also be concerned about the apparent drop in consumer choice – particularly in the local areas where the two parties’ stores dominate local choices. It will be interesting to see the extent to which the CMA considers newcomers to the market to be genuine alternatives.
“The grocery market has undergone huge changes since the CMA last investigated it very carefully in 2007 – with the rise of relative newcomers like Aldi and Lidl, the increasing prevalence of online shopping, and the prospect of internet giants like Amazon entering the fray.
“The CMA will need to be reassured that the merger won’t fundamentally alter the aggressively competitive market conditions it found in 2007, with the main players constantly trying to beat the prices offered by their competitors.”
Since the deal was announced, UK lawmakers have raised concerns about how the deal will affect competition in the country’s retail sector.
Rachel Reeves, chair of the Parliament’s Business, Energy and Industrial Strategy Committee, said: “This merger threatens customer choice, hands yet more power to mighty supermarket players and heaps more pressure on small and medium suppliers.”
The combined business would have 2,800 stores in the country, with combined revenues of £51 billion.
In some parts of the UK, particularly in London, Sainsbury’s and Asda stores operate within less than 100 metres from each other and it has been predicted that the CMA could order the company to shut at least 75 stores.
Industry experts have posted their opinions on the shock deal. James Brown of pricing specialist Simon-Kucher said: “The prospect of this merger will send a huge chill up and down the whole supermarket supply chain, while their current suppliers will be braced for demands for further price cuts that many will not be able to deliver.”
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