Sainsbury's-Asda deal 'extremely detrimental' to consumers, says supplier

* "Supplier B" says deal creates duopoly with Tesco (Frankfurt: 852647 - news)

* Says potential for combined group to collude with Tesco

* Sainsbury (Amsterdam: SJ6.AS - news) 's-Asda say deal good for consumers

* Regulator CMA expected to report in January

LONDON, Nov 13 (Reuters) - Sainsbury's proposed takeover of Asda would be "extremely detrimental" to consumers, an unidentified major supplier to the supermarket groups has argued in a submission to Britain's competition regulator.

Sainsbury's agreed in April a 7.3 billion pounds ($9.5 billion) cash and shares takeover of Wal-Mart's Asda - a combination that could overtake Tesco as Britain's biggest supermarket group if it is approved by the Competition and Markets Authority (CMA).

The CMA is currently investigating the deal and seeking views from interested parties. It said last month it expected to issue provisional findings early next year.

It is publishing submissions as it receives them.

A submission from "supplier B", published on Tuesday, said the combined group and Tesco would benefit from a duopoly with 60 percent of Britain's grocery market.

"This will have significant negative implications and raise material competition issues at all levels of the supply and distribution chain, which ultimately will be extremely detrimental for consumer welfare," the supplier said.

It said the proposed combination had the potential to facilitate collusion between Tesco and Sainsbury's/Asda, "ultimately harming consumers".

The supplier added the deal could result in increased prices and reduced product choice.

Its submission follows several published last week, echoing comments from "supplier A", which was also not identified.

Britain's No. 4 supermarket chain Morrisons expressed concerns over the deal's impact on national and local grocery competition, while No. 8 Waitrose highlighted concerns over the creation of a duopoly and the inclusion of Aldi and Lidl in the CMA's modeling.

No. 5 Aldi also argued it should not be given the same weighting in the modeling as Britain's big four grocers.

The CMA also published on Tuesday a 76-page submission from Sainsbury's and Asda responding to the issues statement the CMA published last month.

Their key argument is that the deal would lower prices and improve the customer offer of both brands, while allowing suppliers to grow their businesses.

Sainsbury's and Asda have both said they believe the CMA will not insist on a level of store disposals that will make the deal unpalatable.

Last week Sainsbury's Chief Executive Mike Coupe told Reuters he would challenge in the courts any unfavourable ruling by the regulator if the group believed it was not backed up by published evidence.

The regulatory outcome is the major swing factor in Sainsbury's share price, which is up 30 percent so far this year. The stock was down 0.4 percent at 315.2 pence at 1545 GMT.

($1 = 0.7715 pounds) (Reporting by James Davey; Editing by Mark Potter)