An investigation by the competitions watchdog revealed serious concerns about two of Britain's biggest supermarkets joining forces, and warned that it may need to sell off one of the brands before the deal is approved.
It fears that the merger could lead to price hikes and poorer quality in stores, as well as at more than 100 fuel stations owned by the retailers in areas where the brands crossover.
The two chains are the second and third largest grocery retailers in the UK. Together they would have 31.4 per cent of the market compared to Tesco’s 27.6 per cent share.
The retailers announced the proposed merger – which would mean the new supermarket group will have combined revenues of £51billion – in April last year.
It had planned for the stores to continue to operate under their separate brands but now the Competitions Marker Authority (CMA) is warning it may have to sell one of them before a deal is given the green light.
The CMA said a deal would mean that there was less incentive for the shops to drop prices in areas where Asda and Sainsbury's stores overlap.
It ruled that if the companies aren't willing to get rid of one of the household names, then it will have to offload a significant number of branches or else the deal will be blocked completely.
The watchdog added that it feels the businesses are unlikely to be able to address the concerns.
Stuart McIntosh, chair group carrying out the investigation, said: "These are our provisional findings, however, and the companies and others now have the opportunity to respond to the analysis we’ve set out today.
"It’s our responsibility to carry out a thorough assessment of the deal to make sure that the sector remains competitive and shoppers don't lose out."
What does a merger mean for shoppers?
Analysts predict the megastore would rake in £50billion a year in sales.
Why do the chains want to merge?
Discounters Aldi and Lidl have taken market share from the Big Four supermarkets (Tesco, Asda, Sainsbury’s and Morrisons).
With their cut-price offers, the German giants now represent 12.5 per cent of the grocery market.
But an even bigger factor is the online threat of Amazon after it moved into the grocery sector.
Will it be more expensive to shop once they merge?
Their aim is to try to claw back customers they lost to Aldi and Lidl and create a more powerful rival to Tesco, Amazon and online grocery shop Ocado. By teaming up, the supermarkets should have more buying power which means they can cut prices.
Will stores close and will there be job losses?
A union officer has warned there will be “severe implications” for workers of both chains.
He also warned stores near one another in close locations will close.
If the deal goes ahead, who will take over the business?
Experts believe Sainsbury’s chief executive Mike Coupe, 57, will land the top job.
Will Sainsbury’s and Asda still exist and look the same?
Yes. The supermarkets plan to keep their own name and brand.
Could the Competition and Markets Authority (CMA) stop the merger?
If they fear it will become too dominant and harm rivals, suppliers and customers they could block the deal.
The firms reckon the move will save £500million across both businesses, but critics have warned that the move will lead to price hikes and a poor experience for shoppers from the get go.
At the time, Shadow Business Secretary Rebecca Long-Bailey warned it risks “squeezing what little competition there is in the groceries market even further”.
Asda is owned by American retail giant Walmart, the deal will mean that Walmart will own 42 per cent of the UK's largest retailer.
A spokesperson for Sainsbury’s and Asda condemned the report caliming that the evidence is "inconsistent with comparable cases", and insisted that a deal would drive down costs.
They added: "We are surprised that the CMA would choose to reject the opportunity to put money directly into customers’ pockets, particularly at this time of economic uncertainty.
"We will be working to understand the rationale behind these findings and will continue to press our case in the coming weeks."
The CMA is expected to make a final decision on the merger by April 30.
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