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Sainsbury's and Asda promise 10% price cuts if merger is approved

Alanna Petroff
Senior Economics Correspondent at Yahoo Finance UK
Sainsbury’s and Asda are struggling to convince the UK’s competition watchdog about the merits of their merger plans. Photo: Chris Ratcliffe/Getty Images

UK grocery giants Sainsbury’s and Asda are promising to slash their prices by around 10% on everyday items if they’re allowed to merge their operations.

In a joint statement released on Tuesday, Sainsbury’s (SBRY.L) and Asda pledged to cut prices in their stores by £1bn per year. This would come after investing a total of £1bn in the newly merged business over three years.

The two businesses are proposing to merge so that they can lower prices for customers in an increasingly competitive market, while improving quality and service,” Sainsbury’s and Asda said in a written statement.

The two retailers are struggling to convince the UK government’s top competition watchdog about the merits of their £7.3bn ($9.5bn) takeover plan, which was designed to create a massive shopping giant with enough heft to challenge industry leader Tesco (TSCO.L) along with smaller players like Aldi and Lidl.

The Competition and Markets Authority (CMA) ruled last month that the proposed grocery deal would be bad for shoppers and push up prices. The regulator has the ability to block the deal, with a final decision expected at the end of April.

Sainsbury’s also committed to cap its fuel profit levels in the statement, and the two companies promised to sell off some store locations in an effort to meet the CMA’s demands.

Sainsbury’s was among the top performers on London’s FTSE 100 (^FTSE) index on Tuesday, with shares up by more than 1%.

Tesco shares were also up, though the gains were below 1%.

Shares in American retail giant Walmart (WMT), which owns Asda, were rising by about 0.6% in midday trading in the US.

Tesco dominates the UK grocery scene with a nearly 22% market share, according to annual data from research firm Euromonitor. Sainsbury’s is the second largest with just over 12% of the market, followed by Asda with 11%.

Sainsbury’s CEO Mike Coupe previously said in a BBC interview that the competition watchdog’s warnings about the takeover plan were “outrageous.”