Sainsburys Needs A Clean Up On Aisle Three

Regulators threaten to block Sainsbury's and Asda merger

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What's going on?

Shares of British grocer Sainsburys fell 17% on Wednesday its posed in an awkward stance: regulators might not approve its much-anticipated merger with Walmarts UK arm, Asda.

What does this mean?

British regulators ensure potential mergers or acquisitions dont reduce competition and saddle consumers with unfairly high prices and theyre concerned the overlap between Sainsburys and Asdas existing stores means that Asda-burys would cause exactly that. Higher prices in-store and at the petrol pump could be accompanied by reduced product choice and quality.


Authorities granted a reprieve their full decision comes in April. They may demand both companies sell some stores to a rival to keep the newly-merged company on its competitive toes. Though regulators caution theres no guarantee they can be appeased.

Why should I care?

For markets: Major discounts on supermarkets stocks.


January grocery industry data analyzed by Goldman Sachs showed that Sainsburys sales growth lagged rivals, losing out to discount chains in particular. Disappointed investors may have been praying Asda would help Sainsburys get more competitive, partly by way of better buying terms from suppliers (as itd be buying more products for even more stores). Shares of smaller grocer Morrisons fell too, likely amid dashed hopes that fewer competitors would boost its own profits thanks to less promotional spending. Investors also sold shares of Asdas parent company, Walmart, down 3% no deal means less cash to fuel its growing ecommerce business.



The bigger picture: Mergings hard to do.


Companies can agree on a deal price and terms though Sprint and T-Mobile US took years. But then they must convince local regulators to tolerate a new leviathan. US regulators approved a monster-mash of huge and oft controversial mergers last year. Across the Atlantic, however, European Union competition regulators derailed the long-awaited merger between Alstom and Siemens train manufacturing business earlier this month despite the competitive threat from a state-backed Chinese behemoth.

Originally posted as part of the Finimize daily email.

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