Sainsbury’s may have to give up on Asda

With the Sainsbury’s/Asda merger under threat, following the Competition and Market’s Authority’s suggesting that 300 stores would have to be sold before it would consider approval, and Kohl Kravis Roberts (KKR), an acquisition fund apparently hovering, Sainsbury’s might soon wish it had never bothered, particularly as the cost of trying to acquire Asda is said to have risen to £50m.

Tesco in sight

It’s easy to see why Sainsbury’s wants Asda. With its £1.4bn acquisition of Argos in 2016, the growth of its clothing brand Tu, and the general growth of own label, the supermarket chain needs space and reach, and Asda stores bring not just space but location. And of course, who wouldn’t want to be bigger than Tesco though probably not by turnover.

No way CMA

Sainsbury’s claimed it would be able to slash prices through its combined purchasing weight and also give bigger dividends to shareholders. Contrast this with what the CMA just said, that the deal “could lead to a worse experience for in-store and online shoppers across the UK through higher prices, a poorer shopping experience, and reductions in the range and quality of products offered.”

Did anyone say Amazon?

The real concern now is, without a deal, how will Sainsbury’s continue to compete with a resurgent Tesco, an impressively steady Morrisons, and Aldi and Lidl which continue to open stores? Someone even suggested Amazon could snap up the business if it becomes weaker post no-deal. Ouch! I’m not sure Asda owner, Wal-Mart be all that keen on the very company it is now so keen to focus on taking over its UK assets.

If the deal fails, stand by for lots of soul-searching editorials about where the cracks are in an otherwise well-run and highly competitive grocery market.

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