The regulator said in a statement that it shouldn’t go ahead because consumers would be worse-off as prices would rise and there would be a reduction in choice and quality of products.
“It’s our responsibility to protect the millions of people who shop at Sainsbury’s and Asda every week,” said Stuart McIntosh, chair of the inquiry group at the CMA.
“Following our in-depth investigation, we have found this deal would lead to increased prices, reduced quality and choice of products, or a poorer shopping experience for all of their UK shoppers.
“We have concluded that there is no effective way of addressing our concerns, other than to block the merger.”
Sainsbury’s said it wouldn’t appeal against the decision but its CEO Mike Coupe said: “The CMA’s conclusion that we would increase prices post-merger ignores the dynamic and highly competitive nature of the UK grocery market. The CMA is today effectively taking £1bn out of customers’ pockets.”
If the deal went through, it would have created the UK’s biggest supermarket chain, overtaking Tesco (TSCO.L).
Analysts at Bernstein said in a research note: “Unsurprisingly, the CMA blocked Asda-Sainsbury’s merger. Reassuringly, [the Sainbury’s stock] is not appealing. The market’s focus will now shift to: ‘What happens next for Sainsbury’s and Asda?'”
Shares in Sainsbury’s fell in early trading, down nearly 2%, after already taking a hammering this year.
“The real worry for Sainsbo’s [Sainsbury’s] is what now? Sainsbury’s is the squeezed middle, losing market share to discounters and simultaneously losing out to more premium brands. While Aldi and Lidl consistently gain market share and Tesco rebounds, Sainsbury’s is feeling the pinch. The worry is that it had no credible plan except this merger,” said Neil Wilson, chief market analyst at Markets.com.
“The recent performance in stores has been less than impressive. After rising 1% in Q2, like for like sales ex-fuel declined 1.1% in Q3 versus estimates for a roughly 0.3% drop. Total retail sales were down 0.4%. Customers may be a little cautious but Sainsbo’s should be doing better.”