Jefferies sees the UK Competition and Markets Authority ruling against the deal at the end of the deadline on April 30, a day before Sainsbury’s publishes its full-year results.
In February, the CMA had suggested it was leaning towards blocking the merger after provisional findings of its investigation raised “extensive competition concerns”, including higher food and petrol prices in markets where both companies have supermarkets and petrol stations, as well as reduced quality and choice for customers.
To alleviate the CMA’s concerns, the companies agreed to sell up to 150 supermarkets, several convenience stores and a “sufficient number” of petrol stations.
They also promised to slash prices by £1bn each year by the third year after completing the merger.
CMA block to lead to potential private equity interest for Asda
Noting the remedies Sainsbury’s and Asda have suggested, Jefferies said: “In reality, we struggle to assume anything beyond a 20% chance of a drastic rethink by the CMA.”
Jefferies added: “In addition, a recourse by the two grocers to a judicial review is not necessarily a given, and will need to reflect the balance of probability of success and the lengthy timetable that such an action would imply.
“It is therefore probable that a definitive CMA block would supply the catalyst for any potential private equity interest for Asda to materialise swiftly.”
Sainsbury's full-year results 'largely inconsequential'
With the focus CMA’s decision, Jefferies thinks Sainsbury’s financial results will prove “largely inconsequential”.
The broker expects limited surprises from the finals with softening food sales already widely flagged by Kantar Worldpanel.
The latest figures from Kantar showed Asda had overtaken Sainsbury’s as the UK’s second largest supermarket in the 12 weeks to March 24.
Sainsbury’s saw its market share drop 0.5 percentage points (ppts) to 15.3% after sales declined 1.8% over the 12-week period.
Jefferies estimates fourth-quarter like-for-like sales at Sainsbury’s dropped 1.5% after a 1.1% fall in the third quarter, including a 0.4% dilution from Mother’s Day falling into the new financial year.
However, Jefferies still expects profits to meet consensus forecasts of £626mln.
“Inevitably, the focus will be on outlook tone for the year ahead, given the extent to which Sainsbury’s sales lag is starting to look well entrenched.”
Sainsbury's seems to be losing customers to Tesco
Jefferies said the critical question will be how Sainsbury’s responds to “what appear to be accelerating switching losses to Tesco”.
The broker believes Sainsbury’s new chairman Martin Scicluna is likely to preside over wider changes in the group if the CMA rejects the Asda merger.
“In particular, the risk of a reinvigorated Tesco continuing to recover customers historically lost to Sainsbury’s would need addressing with urgency,” it said.
Jefferies left its rating on the stock at ‘hold’ and its target price at 230p.
In morning trading, shares were little changed a 235p each.