IT WAS BILLED as the retail deal of the decade, at a stroke creating Britain’s biggest supermarket chain—and one of Europe’s largest, too. No longer. On April 25th Britain’s Competition and Markets Authority blocked the proposed £12bn merger between the country’s second-largest supermarket, Asda, which is owned by America’s Walmart, and the third largest, Sainsbury’s. By combining the pair’s market shares of 15.4% and 15.
Asda and Sainsbury’s argued that in Britain’s ruthlessly competitive retail market, the deal would have given them room to cut costs and thus offer lower prices to customers. Mike Coupe, the boss of Sainsbury’s, had claimed that prices would fall by as much as 10%. It would also have enabled the new firm to compete more effectively with Aldi and Lidl, two German discount stores that have been gobbling up market share over the past decade.
The two supermarkets bemoaned the CMA’s decision. Many others, however, are relieved. Trade unions are happy that job cuts have been avoided. Farmers and other suppliers had expressed concern at the merger; they would probably have borne the brunt of the cost cuts. The collapse of the deal leaves Sainsbury’s, in particular, in a pickle. Its share price, already significantly down over the past few years, dipped sharply on the news. Many analysts and investors had argued that Sainsbury’s management was investing too much faith and time in a merger that always looked vulnerable to the CMA’s intervention, while ignoring the company’s underlying weaknesses.
The CMA’s decision may also have wider implications for British business and the economy. In the past decade Britain has witnessed about $2trn-worth of mergers and acquisitions of domestic firms. Relative to the size of the economy, that is over a fifth more than in America over the same period. American economists and politicians are increasingly concerned that their economy has become too concentrated, limiting competition and eroding consumer welfare.
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