UK blocks Sainsbury's merger with Walmart unit Asda

LONDON — British regulators blocked Sainsbury's 7.3 billion-pound ($9.4 billion) purchase of Walmart's Asda unit on Thursday amid concerns the deal would have increased prices and reduced the quality and range of products available. For Walmart, it's another setback as it tries to refocus its international operations on higher-growth markets.

The Competition and Markets Authority said the deal creating the U.K.'s biggest supermarket chain would lead to a poorer overall shopping experience across the country, even in places where there was no direct overlap. It also found that motorists would be forced to pay more at over 125 locations where Sainsbury and Asda have gas stations near one another.

"We have concluded that there is no effective way of addressing our concerns, other than to block the merger," said Stuart McIntosh, who led the agency's review of the deal.

J. Sainsbury Plc announced plans to buy Asda last year as it sought to cut costs amid competition from discount chains that have increased their share of the U.K. grocery market.

Walmart, meanwhile, is pulling back from its international operations as it faces challenges establishing its budget shopping model in foreign markets and focuses on big growth opportunities. Based in Bentonville, Arkansas, Walmart operates stores under 55 banners in 27 countries outside the U.S. It gave up in Germany and South Korea in 2006, and it closed 10 percent of its Brazil stores in 2016 as it looked to restructure its operations. In many overseas markets, Walmart has lacked the scale to press local suppliers on price as it does in the United States.

Walmart's international business, which accounts for about 24 percent of its total revenue, rang up $120.8 billion in sales for the fiscal year ended Jan. 31.

But the retailer has been responding to the various landscapes and differing consumer behaviors, and teaming up with local partners when it realizes it can't go it alone. One example is China, where more than 700 million people are online and where it has a partnership with Chinese online retailer JD.com.

Retail analysts showed little surprise at the U.K. regulator's decision, particularly after an interim ruling came to the same conclusion. But merger watchers Clive Black and Darren Shirley at Shore Capital said that the heart of the proposed deal's problems was the incorrect assumption that the CMA would wave through the merger as it did for a previous deal involving Tesco and Booker.

"We felt at the time that it was a surprising and poor decision," the analysts wrote. "However, rather than analyzing matters with a sense of rationality and perspective, Sainsbury and Asda seem to have decided that 1+1 can equal 10."

The chains also failed to take into account that the leadership of the CMA had changed. It is now chaired by Andrew Tyrie, the former chair of the Treasury select committee and a man known as a champion of consumers.

Sainsbury's shares fell nearly 5% to 215.90 pence.

The company said in a statement that it had agreed with Walmart and Asda to "terminate the transaction," even as CEO Mike Coupe insisted that the decision ignored the "dynamic and highly competitive nature of the UK grocery market."

Must Read

Fans mourn pop's George Michael as charities...

Dec 26, 2016

Fans are mourning the death of pop star George Michael as British charities praise his generosity

Arsenal midfielder Xhaka questioned by police

Jan 24, 2017

Arsenal midfielder Granit Xhaka has been questioned by police after being accused of racially...

The royal scoop: Documents from King George III...

Jan 28, 2017

An enormous cache of historical documents from Britain's royal archives detailing the reign of King...

UK pardons thousands convicted under past...

Jan 31, 2017

Thousands of men convicted under now-abolished anti-homosexuality laws in Britain have been...

Queen Elizabeth II marks record 65 years on throne

Feb 6, 2017

Queen Elizabeth II has become the first British monarch to reach the milestone of 65 years on the...

Sign up now!