Britain’s Competition and Markets Authority (CMA) has warned that the proposed £12bn merger between British supermarkets J Sainsburys PLC (LON:SBRY) and Walmart Inc.'s (NYSE:WMT) Asda could seriously lessen competition in 463 local areas across the country.
Last week, the competition watchdog said, having completed its Phase 1 investigation into the proposed merger, that the deal raised sufficient concerns to be referred for a more in-depth review. The CMA said it was concerned that the retailers’ stores overlapped in hundreds of local areas, meaning that shoppers could face higher prices or a poorer quality of service in places where both chains had stores.
READ: £12bn Sainsbury’s-Asda merger referred for more in-depth phase 2 investigation
Releasing the results of the first phase of its probe into the deal, the CMA on Thursday said there was a "realistic prospect of a substantial lessening of competition (SLC), " in many local areas.
"At a local level, the parties’ stores overlap in several hundred local areas across the UK," the CMA said. "The CMA believes that the merger may give rise to a realistic prospect of an SLC in many of these local areas if Sainsbury’s and Asda are insufficiently constrained by other local competitors,” the CMA said in its statement.
Earlier this year, Sainsbury's announced plans to acquire Asda, which could shrink the number of supermarkets in the UK.
During the second phase of its probe, independent panel members will gather further evidence through customer surveys, discussions with rival retailers, suppliers and industry bodies, the CMA said.
“It’s a given that the CMA will demand disposals if it does approve the merger, but this is already factored in by both Sainsbury’s and Asda and indeed some of the presumed synergies from the deal are no doubt in some way based on disposing of a certain number of stores. The question is how many stores they need to lose – too many could break the deal,” Markets.com analysts said in a note to clients, adding that the CMA’s statement suggests it may be less positive on the deal than the market believed.
The watchdog has a deadline of 5 March 2019 to reach a decision.
Shares in Sainsbury’s dropped 2% in early trade but recovered losses and were 0.6% down at 316.90p in mid-afternoon trade.