British Regulators Blocks Walmart And Sainsbury's US$9.4 Billion Merger

Walmart Sainsbury Deal
Workers unload a Sainsbury's home delivery van in central London, Britain (Photo: Reuters)

UK regulators have blocked the planned merger between supermarket giants Sainsbury and Walmart-owned Asda. Both companies previously agreed to the sell-off back in April of last year, where Sainsbury agreed to pay US$9.4 billion to Walmart to take over its operations in the UK.

The UK's Competition and Markets Authority announced on Thursday that it has now shut down the proposed sale of the popular British supermarket brand. Both Walmart and Sainsbury announced that they have mutually agreed to terminate the deal in light of the regulator's decision. Following the announcement, Sainsbury's share prices dropped by as much as 6 percent.

The planned purchase had valued Asda at US$9.4 billion if it had pushed through. Sainsbury's purchase of the supermarket brand would have resulted in a mega retail firm that would have more than 2,800 stores in the country. The merging of both retailers would have resulted in combined annual sales that would be well over US$66 billion.  

Walmart and Sainsbury would have both greatly benefited from the deal. Sainsbury's acquisition of Walmart's Asda stores would have allowed it to overtake the country's current market leader, Tesco. Meanwhile, Walmart would have unloaded its assets in Britain, which it considers its weakest performer globally.

The Competition and Markets Authority mentioned in a statement that they had ruled that the takeover would have been bad for British consumers. The merger likely would have resulted in higher prices and lower quality goods throughout both stores. According to Stuart McIntosh, the head of the CMA investigation, they really had no choice but to block the partnership as it would have been detrimental to the millions of people that shop at Asda and Sainsbury each day.

While both companies had agreed to terminate the deal, they, however, did not agree with the reasons for its derailment. Sainsbury's CEO Mike Coupe mentioned that the main reason for the merger was to lower prices for customers and that they actually planned to cut prices by as much as 10 percent during the first three years after the deal was done. Both companies apparently even agreed that they would cap fuel prices at their gas stations once the deal was finalized.

Market analysts are however skeptical about the companies' claims, stating that it would be impossible for the companies to assess the future prices of their goods in the coming years. If the merger was completed, it would have allowed Sainsbury to gain a major stake in the market, with the only winners being the company's shareholders.

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