Walmart Asda Deal Hits Regulatory Roadblock

It looks like the deal to merge Sainsbury’s with Walmart-owned Asda could be in fatal trouble — after a ruling by the Competition and Markets Authority on a deal that would have created the U.K.’s biggest supermarket chain with a £12 billion ($15.6 billion) deal.

“The CMA has provisionally found extensive competition concerns as part of its in-depth investigation,” the regulator said in a statement.

The ruling has been widely critiqued by some as out of touch with the needs of the current retail landscape — as many feel it will either lead to the deal being blocked in its entirety or conditioned around the sale of a significant number of stores from one or both brands

“These findings fundamentally misunderstand how people shop in the U.K. today,” Sainsbury’s chief executive, Mike Coupe, said. “[The CMA] have fundamentally moved the goalposts, changed the shape of the ball and chosen a different playing field.”

The tie-up of Britain’s second-largest and third-largest grocery chains comes as the segment is under pressure from digital players like Amazon and Ocado — as well as by discounters like Lidl and Aldi.

The pressure in the market has left big chains looking to cut costs via consolidation — particularly in and around the back office. For many grocery market viewers in the U.K., changing consumer shopping habits mean this kind of efficiency-building is going to be critical for brands going forward.

The regulator, however, did not see it that way.

“Whilst we need to see if Sainsbury and Asda can argue and legally challenge the CMA’s findings, the deal looks to have suffered a mortal blow,” said Clive Black, an analyst at broker Shore Capital, according to MarketWatch.

Sainsbury’s and Asda will further argue in defense of the deal that there has also been a big shift toward shoppers buying their groceries online.

The CMA for its part argued that an Asda-Sainsbury’s tie-up could lead to weakening competition, higher prices, and a worse range of foods and choices for consumers. Some consumer groups have thus lauded the ruling as protecting consumers right to a diverse array of goods.

Sainsbury’s has vowed to fight on with the merger, which, should it go through, would see the newly conjoined entity overtake Tesco as Britain’s largest retailer, with revenue of about £51 billion and more than 2,800 stores in possession of 31.2 percent of the market.