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Analysis: Sainsbury’s and Asda treading a fine line between commercial viability and keeping the watchdog happy

PUBLISHED: 08:33 01 May 2018 | UPDATED: 08:33 01 May 2018

From left, Mike Coupe, chief executive of J Sainsbury, Judith McKenna, president and chief executive of Walmart International and Roger Burnley, president and chief executive of Asda. Picture: Sainsbury's/PA Wire
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From left, Mike Coupe, chief executive of J Sainsbury, Judith McKenna, president and chief executive of Walmart International and Roger Burnley, president and chief executive of Asda. Picture: Sainsbury's/PA Wire .

The full impact of the £12bn mega-merger between Sainsbury’s and Asda may not be known for some time.

But with fears raised over thousands of jobs amid potential store disposals being ordered by the deals watchdog the Competitions and Markets Authority (CMA) we asked experts what we might expect to see.

Alex Saunders, solicitor at Norwich firm Leathes Prior, said while the CMA had several powers, including ordering the two businesses to run separately and issuing fines, it was most likely it would order a disposal of stores where they adversely affected competition.

He said: “I suspect the CMA will have to do something otherwise, on the back of the Tesco-Booker deal and now this, it will look toothless. I suspect it will be in the form of disposals and it will be a balancing act because if it is too many it will make the deal unviable.”

The unified group, which would have a bigger market share than current leader Tesco, would have combined revenues of £51bn and boast a network of 2,800 Sainsbury’s, Asda and Argos stores.

Across the region the brands have 25 superstores, and both have stores in Ipswich, Norwich, King’s Lynn, Bury St Edmunds and Great Yarmouth – though the CMA’s view is likely to depend on how close the competing stores are, and whether shoppers have alternative supermarket choices nearby.

Mr Saunders said he felt the two businesses had found themselves in a stalemate and the merger was a way they could speed up growth.

He said: “If you are a supplier for one or both of those you are going to find that they have far greater power to drive prices down.

“That’s going to play out better for Sainsbury’s and Asda, and will be a big reason for the deal.”

Headache for the watchdog

Sainsbury’s and Asda could face a tough time convincing the watchdog their merger will not stifle competition, according to an academic.

Ratula Chakraborty, senior lecturer in business management at the University of East Anglia, said: “This proposed merger presents a major headache for the competition authorities. They will need to decide if the combined business will generate efficiencies that will be passed on to consumers through lower prices, or simply set in motion a wave of industry consolidation that will reduce competition and make consumers worse off.

“In 2003, the authorities blocked both Sainsbury’s and Asda acquiring Safeway, which was a much smaller chain.

“The fear then was that a major merger would be bad for consumers.

“It is difficult to see why the authorities would now change their mind and allow such a mega-merger, despite new competition from Aldi and Lidl.”

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