The Asda-Sainsbury’s merger is surely doomed

Mike Coupe has gone from channelling Ginger Rogers in April last year to Private Frazer today, after the Sainsbury’s-Asda merger plans received a hammer blow from the CMA.

The prospects of the deal going ahead appear doomed despite some tough talking from the Sainsbury’s boss. He accused the competition watchdog not just of moving the goalposts but redesigning the ball and the pitch while they were at it.

As the dust settles, however, it will be interesting to see if the parties do decide to see the merger battle through to what, for them, looks like an inevitably bitter end.

Today’s provisional findings may amount to a 22-page summary of a full report that will run into hundreds of pages, but according to more than one seasoned competition expert they already represent an insurmountable barrier for the merger.

Even experts who had expected the proposals to be eventually thrown out were taken aback at what one of them described as the “systematic dismantling” of the argument that Sainsda would bring about lower prices for shoppers.

“I’ve never seen wording like this in my life,” were the words of one seasoned competition expert. The deal was now “virtually impossible” he said.

Opinion: Epic CMA report leaves little hope for Sainsbury’s-Asda

They may have won more time over Christmas to fight their corner, but very little else has gone the way of Sainsbury’s and Asda when it comes to the provisional findings.

Having won the argument for Aldi and Lidl to be included in the competitor set for its Phase 2 inquiry, they have now seen the CMA increase the number of areas where it believes there could be a serious lessening of competition by nearly 200, from Phase 1, when the discounters were excluded.

Coupe may be right when he says that doesn’t add up. However, Stuart McIntosh, chair of the independent inquiry group carrying out the investigation, was quick to point out today that not only was this a more detailed phase of the investigation, but that he was not even involved in Phase 1.

There was also surprise from those who expected today’s report to be all about how many stores Sainsbury’s and Asda would have to sell off to pass local competition concerns – and who might be persuaded to buy them.

The fact is the number of areas identified – 629 – is so huge, it would surely entail a sale of hundreds of stores. That would never happen.

Today Sainsbury’s admitted the chances of the deal going through were slim unless it could convince the CMA to “fundamentally change its thinking”.

But what realistically are the chances of the CMA carrying out such a u-turn? It says it is sitting on 60,000 views from shoppers and motorists, which, it says, show the merger would put up prices for groceries and petrol across the UK – and leave the door open for reduced competition across traditional stores as well as online.

Sainsbury’s-Asda CMA findings: analyst reactions

As Andrew Taylor, a partner at Aldwych Partners and former senior director at the Competition Commission, puts it, Sainsbury’s has been “done like a dinner”. There is, he says “no way back”.

As for suppliers, despite the mauling Coupe and Asda boss Roger Burnley received from MPs, and the string of companies and trade bodies warning of the squeeze they would face from the merged businesses, it appears this has not been a deciding factor.

But surely those who opposed the deal will still get what they wanted.

The argument, when it comes to efficiencies, has come down instead to whether the CMA believes the supermarket bosses when they pledge that the savings from suppliers will be turned into consumer prices.

It clearly doesn’t and it will take something of a miracle for Asda and Sainsbury’s to persuade the CMA to change its mind.