Deal breaker: Sainsbury’s and Asda’s merger
29 April 2019 by Andreea Brindas
Approximately one year ago, Sainsbury’s announced its intention to take over its rival supermarket Asda; in a merger deal which promised cuts of £1bn. However, on 25 April 2019 the Competition and Markets Authority (“CMA”) decided to block the merger due to the potential harm to consumers and competition.
Sainsbury’s is a public limited company with shares listed on the London Stock Exchange. Sainsbury’s is the third largest chain of supermarkets in the UK, following Tesco and Asda respectively. Walmart (an American Parent company) currently owns Asda. Asda and Sainsbury’s are currently second and third within their market. The CMA concluded the combined power, and collective market-share, of Sainsbury’s and Asda could have formed the UK’s largest supermarket.
Merger and CMA decision
The two supermarkets argued that some of the benefits of the merger were lower costs for both companies; and therefore lower costs for the consumers across the UK. Sainsbury’s also argued that the merger would help counteract the rapid growth of Aldi and Lidl within the UK.
However, the CMA found that despite Sainsbury’s statements, the likely effect of the merger was that it would create a retail giant in the UK market; and would also affect competition for the other smaller UK grocers. Another effect would have been that the prices for consumers would have risen rather than fallen, whilst limiting consumers’ choices.
The Chair of the CMA’s inquiry group suggested that the merger ‘would reduce competition in supermarkets and online grocery shopping and at the companies’ petrol stations. We think that is likely to lead to higher prices or other changes which would be unwelcome to shoppers, such as longer checkout queues’.
Competition in the UK
Competition law can be exercised in a number of ways. A merger deal (as proposed by Sainsbury’s and Asda), a distribution agreement, a franchise agreement and via various other methods. Either way, the CMA is the UK authority body responsible for implementing and upholding competition law in the UK.
It is very important that you comply with the competition law rules as failure to do so has potentially-serious adverse consequences to you (if you are director if the company) and/or the company itself. For general guidance in relation to competition law and distribution agreements please refer to our previous blog on this topic (available at https://www.fjg.co.uk/blog/2019/02/25/distribution-agreements-compliance-with-competition-law-and-consequences).
The Corporate Commercial Department here at Fisher Jones Greenwood LLP can certainly assist you with the preparation and/or of any distribution and/or franchise agreements to ensure compliance with competition law rules; as well as assist you and guide you through an acquisition, merger or other types of commercial transactions.
Should you require any information or assistance do not hesitate to get in touch. Please call 01206 700113 or email [email protected].
Source: BBC News
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