Proposed Sainsbury’s and Asda Merger Blocked by Competition and Markets Authority (CMA)
An intended tie-up between two of Britain’s biggest supermarket chains has been blocked and does not now look like it will go ahead.
Merger and Acquisitions specialist, Richard James, explores the competition law aspects of the decision and why the law exists to regulate potentially anti-competitive behaviour or situations which might create market dominance.
Although the combination of two of the largest UK supermarkets might, on the face of it, give rise to questions particularly around market share, the parties themselves have highlighted what they perceive as a lack of understanding by the regulator of the changing grocery market within the UK. Certainly, had such a major tie-up been contemplated 15 years ago, when the number of players in the market were fewer, the potential for what is deemed in the regulations as an abuse of a dominant position, may well have played out.
However, analysts appear to have acknowledged their rationale for the deal; in recent years the rise of the discounters, including Aldi and Lidl has been meteoric, brining a significant challenge to the established supermarket chains. No doubt, Sainsbury’s and Asda have continually had to recognise this; seeing a significant benefit to their own businesses but also to consumers by achieving a reduction in overhead and infrastructure costs. They concluded this would have passed on costs-savings to consumers; unfortunately, the regulator disagreed.
Stuart Macintosh, chair of the CMA inquiry group into the proposed merger disagreed, commenting: “It would reduce competition in supermarkets and online grocery shopping and at the companies’ petrol stations.”
Between Sainsbury’s and Asda they have around 2,000 shops across the UK; no doubt they had recognised the opportunity to take a march on the market-leader Tesco, alongside putting themselves in a better position to compete with the newer players in the market. However, what is generally known as competition law seeks to ensure sufficient competition for consumers is maintained, with the availability of products or services not being distorted in any way, by one company dominating the market as a whole. We suspect it was this potential for market dominance, rather than allowing both brands to continue and having to compete with each other for consumers’ attention, that led to the CMA’s decision.
The rationale for this approach, in seeking to avoid what might become anti-competitive activity in the UK and elsewhere, is to promote the best choice for consumers. Although competition law is often thought of with major deals such as this, Richard James commented: “In company sales or buyouts, particularly in more niche sectors – certainly the case for some of the technology clients that we look after – the potential for competition law issues must not be overlooked; some of the technology that we see is bespoke and if a client has created market share for themselves quickly, where for example their own technology and related intellectual property is first-to-market, the scope for anti-competition issues can come to the fore; being able to understand the technology given our specialism in this sector, really helps us appreciate and advise on such issues for our clients, ensuring there are no surprises once a deal has been concluded.”
Specialist advice is always recommended, particularly in this sector where the value of intellectual property and intangible rights can be key; our commercial, IP and mergers and acquisitions expertise allows us to support technology-driven clients looking to grow and realise their ambitions.