Sainsbury's Faces Inquiry Into Argos Takeover

The competition regulator has launched an inquiry into Sainsbury (Amsterdam: SJ6.AS - news) 's takeover of Argos - in a move that could potentially jeopardise the £1.4bn deal.

The Competition and Markets Authority (CMA) said it had informed Home Retail Group - the company behind Argos - and the supermarket chain of its decision in a notice on Friday.

Its initial assessment will consider comments from both parties in the coming fortnight before the first phase of the investigation.

It (Other OTC: ITGL - news) must decide by 25 July whether the case then warrants a full probe - a move that would likely delay completion of the proposed deal, expected in the late summer.

The CMA said it must determine whether Sainsbury's plans are likely to result in a "substantial lessening of competition within any market or markets in the United Kingdom for goods or services".

It has the power to ultimately block the takeover or order the sale of some stores to satisfy any local competition concerns.

A week ago the CMA determined that Ladbrokes (LSE: LAD.L - news) and Gala Coral may have to sell up to 400 stores if their planned tie-up was to be allowed.

The Sainsbury's deal, as it stands, would create a £6bn non-food operation, putting the new business in the same league as John Lewis and Marks & Spencer (Other OTC: MAKSF - news) and also taking on Amazon.

Sainsbury's has said it plans to relocate many Argos stores within under-occupied space in its supermarkets, threatening the closure of up to 200 sites.

Argos currently has 845 stores and employs 30,000 people. It notched up sales of more than £4bn for the year to the end of February.

Sainsbury's has not confirmed the number of sites that will close but says that after the takeover there will be more than 2,000 sites including concessions within and "click and collect" points as well as stores.

The deal - once approved by shareholders and regulators - is expected to deliver annual savings of £160m once completed and result in some job losses.

It was announced after Home Retail Group agreed to sell its DIY business, Homebase, to Australian firm Wesfarmers for £340m.