Souffle at Walmart, the regulator warns about the rapprochement between Asda and Sainsbury



Sainsbury's attempt to merge with Walmart-owned Asda will never come to an end after the retail giants sued the UK regulator even before it came to a decision.

On Wednesday, the Competition and Markets Authority took revenge by striking hard on what would have created the largest chain of supermarkets in the United Kingdom through a merger of 12 billion pounds ($ 15.6 billion) ).

"The ACM has temporarily found significant competition concerns as part of its in-depth investigation," the daily said in a statement.

This decision sent shares of J. Sainsbury PLC

SBRY, -15.94%

tumble 15.14% early in the session, the future of the transaction is at stake.

The preliminary ruling, which has been criticized by some as being disconnected from the changing landscape of retail, suggests that the merger be blocked or conditioned to the sale of a significant number of stores, or of one of the brands.

Asda, acquired in 1999 by Walmart Inc.

WMT, -2.06%

, and Sainsbury's said in a statement: "These findings are fundamentally incomprehensible as to how people are buying in the UK today," said Mike Coupe, general manager of Sainsbury, in an interview on the radio: "[The CMA] basically moved the posts, changed the shape of the ball and chose a different playground. "

The second and third British grocers saw in this partnership a solution to counter the threats of the online giant Amazon Inc.

AMZN, + 0.14%

and smaller rival Ocado Group PLC

OCDO, + 0.71%

OCDDY, + 4.29%

and the Lidl and Aldi discounters.

Food retailers have struggled with seismic shifts in the industry in recent years.

Traditional chains are facing fierce competition from discounters and have been penalized by changing buying habits.

The High Street was dominated by four major players, Tesco, Asda, Sainsbury's and Wm. Morrisons Supermarkets PLC

MRW, -5.50%

and buyers tended to buy supplies during a single trip to a supermarket. But the weekly store has been replaced by customers making numerous visits to small convenience stores, customers seeking to save money and create less waste as a result of the financial crisis.

Grocers with smaller neighborhood stores, such as the Coop, were better positioned than many of the traditional chains inherited from their large supermarket footprints and fewer purchases.

Consolidation was seen as a way to help these channels reduce their costs, mainly in the back office, by making these stores economically viable and keeping prices low.

But the regulator did not see it as well, leading critics to conclude that it is stuck by an outdated view of the market.

"Although we need to know if Sainsbury and Asda can legally challenge and challenge the findings of the AMC, the deal seems to have suffered a lethal blow," writes Shore analyst analyst Shore Shore. Capital.

In saying that the decision removes the merger premium, he downgraded the stock title to sell it.

Sainsbury's and Asda will continue to argue, in support of the defense of the agreement, that there has been a big change in terms of buyers buying their groceries online.

This is an area where Amazon

AMZN, + 0.14%

tries to gain scale and Ocado, who has no shop, is a powerful player. Sainsbury and Asda can argue that these two rivals have a scale worthy of competition. The pair also suffered as buyers headed for the no-frills chains Aldi and Lidl, which offer less choice but cheaper products.

The duo will try to argue that this more fragmented market shows that the domination of former players is diminishing.

The four big grocers now control just over two-thirds of the grocery market, according to market research firm Kantar.

In its statement, the CMA is concerned that the Asda-Sainsbury merger could weaken competition, drive up prices, hinder purchasing purchases and adversely affect the range and quality of products offered. And some commentators said the decision was good for consumers.

Relations between Sainsbury's and Asda and the CMA were not improved after a court ruled that the CMA acted unfairly to not allow grocers more time to respond to the evidence presented in the report. this investigation.

The CMA process is now undergoing a consultation process and Sainsbury's is committed to continuing the merger process, which would have allowed it to retain the two brands that benefit from purchasing efficiencies.

The merger, which was agreed last April, would have seen the combo overtake Tesco

TSCO, + 0.99%

TSCDY, + 0.68%

UK's leading retailer, with sales of approximately £ 51 billion and more than 2,800 stores holding 31.2% of the market.

Walmart was to receive 3 billion pounds and take a 42% stake in the combined business. The US retail giant had the option of selling at 29.9% after two years and disappearing completely after four years.

Regulator's decision leaves Walmart with a problem in the United Kingdom: Asda has struggled in recent years, although it recorded a quarterly increase in sales for the seventh consecutive quarter, up 1% over the past three years month.

Walmart on Tuesday released fourth-quarter results ahead of analysts' consensus forecasts.

Lily: Walmart does not see the slowdown in consumption as the December retail sales slump suggested

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