Shares dive in major UK supermarket Sainsbury's after Asda merger put in doubt

Sainsbury's shares have dived 15% after the UK's competition watchdog cast doubt on its plan to buy Asda. Customers could see higher prices and less choice if the two grocers combined, the Competition and Markets Authority (CMA) said. It said it could block the deal or force the sale of a large number of stores or even one of the brand names. However, it also said it was "likely to be difficult" for the chains to "address the concerns".

Sainsbury's boss said the findings were "outrageous". Sainsbury's chief executive Mike Coupe described the CMA's analysis as "fundamentally flawed" and said the firm would be making "very strong representations" to it about its "inaccuracy and lack of objectivity". "They have fundamentally moved the goalposts, changed the shape of the ball and chosen a different playing field," he told the BBC

The deal would create the UK's biggest supermarket chain, a business accounting for £1 in every £3 spent on groceries in the UK, with a 31.4% market share and 2,800 stores

The CMA's Mr McIntosh said: "We have provisionally found that, should the two merge, shoppers could face higher prices, reduced quality and choice, and a poorer overall shopping experience across the UK. "We also have concerns that prices could rise at a large number of their petrol stations."

However, in a joint statement, Sainsbury's and Asda said combining the two chains would create "significant cost savings, which would allow us to lower prices". "Despite the savings being independently reviewed by two separate industry specialists, the CMA has chosen to discount them as benefits."

Hargreaves Lansdown senior analyst Laith Khalaf said the CMA had "basically kicked the Sainsbury-Asda merger into touch". "While the regulator left the door open for the supermarkets to sell off assets to complete the deal, it's clearly not keen on that solution.

Sainsbury's and Asda would also have to find a suitable buyer for the assets on sale, one who is big enough to provide proper competition in the eyes of the regulator, he added

Patrick O'Brien, UK retail research director for GlobalData, said the CMA's provisional findings had "devastated any prospect of the merger going ahead". "The CMA has raised concerns about the tie-up in just about every conceivable way - on national and local grounds, on store and online competition concerns and on major stores, convenience stores and petrol stations."