Shore Capital moved swiftly to chop its rating for J Sainsbury PLC (LON:SBRY) to ‘sell’ from ‘hold’ after the UK competition regulator hinted it would block the food retailer’s planned £10bn merger with Asda, owned by Wal-Mart Inc (NYSE:WMT).
In a note to clients, ShoreCap analyst Clive Black said: “We stated repeatedly that we could not predict the UK Competition & Markets Authority (CMA) and today we see why.”
READ: Sainsbury's plunges as UK regulators leaning towards blocking £10bn Asda merger
He added: “Whilst we need to see if Sainsbury and Asda can argue and legally challenge the CMA’s findings, the deal looks to have suffered a mortal blow; the CMA struggles to see how remedies can deliver its view of a competitive UK market.”
Black said that Sainsbury’s angry reaction to the CMA’s announcements, reflects the mood but “also perhaps is a little detached”.
The analysts pointed out: “We believe it is bordering on laughable for the Group to state ‘We are surprised that the CMA would choose to reject the opportunity to put money directly into customers' pockets’ when we always felt that 10% price cuts on unspecified products on an unspecified timeframe was playing to the galleries.”
He said it looks like Sainsbury has “misunderstood the consumer and the CMA.”
Ginger Rodgers songs
However, Black added: “There is more water to potentially flow under the bridge on this one, but expect considerable interest in songs sung by Ginger Rodgers today.”
Sainsbury’s boss Mike Coupe was famously caught off-camera singing ‘We’re in the Money’ after announcing the planned merger deal last year, which was sung by the famous hoofer.
However, Black is likely referring to Rodgers rendition of the Gershwins number ‘Let’s Call the Whole Thing Off’.
The analyst concluded: “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.”
“For Wal-Mart this is a headache that requires plan B, although we sense that there will be more smiles in Leeds than Holborn,” he added.