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Fury in the aisles over the merger that may never happen

Sky News logo Sky News 20/02/2019 Adam Parsons, business correspondent
a store shelf filled with books: The CMA thinks the planned tie-up would destabilise the grocery market © Other The CMA thinks the planned tie-up would destabilise the grocery market

The merger between Asda and Sainsbury's isn't dead, but it's in a critical condition and the undertaker's on his way.

For a start, the Competition and Markets Authority (CMA) clearly hates this whole idea.

It thinks it will reduce competition, push up prices and destabilise the grocery market.

And that's not even my interpretation - it's all there in black and white.

The deal, it says, would have a detrimental effect on hundreds and hundreds of supermarket locations, on online shopping and also on petrol pricing.

And it would be bad for the structural integrity of British retail.

a man wearing a suit and tie: Sainsbury's boss Mike Coupe was caught humming 'we're in the money' after plans for the merger were announced © Other Sainsbury's boss Mike Coupe was caught humming 'we're in the money' after plans for the merger were announced

So what's to be done? Well, its first suggestion is to ban the whole thing.

"Prohibition would self-evidently be an effective and comprehensive solution," says the CMA.

That's its first plan - call the whole thing off.

Then there's the idea of selling off stores so that the combined company isn't so huge.

The CMA doesn't like this idea because, firstly, it would much rather kill the deal outright, but also because it thinks that selling hundreds of stores and petrol stations would be unwieldy and difficult.

a sign above a store: Sainsbury's and Asda think the CMA's findings misunderstand the nature of modern retail © Getty Sainsbury's and Asda think the CMA's findings misunderstand the nature of modern retail

Who, after all, is in the market for a load of supermarkets, without creating another big competition headache?

All of this is provisional.

The supermarkets have until the middle of March to respond, and then the CMA will go away, ponder once more, and report back again, probably on 30 April.

But it's clear already that, short of the greatest change of heart since Bill Clinton became a vegan, the CMA will recommend killing this merger.

For Sainsbury's and Asda, who were expecting it to be bad, this report is way worse than they feared.

Mike Coupe, CEO of Sainsbury's © Reuters Mike Coupe, CEO of Sainsbury's

Little surprise that Sainsbury's chief executive Mike Coupe sounded apoplectic when he appeared on BBC radio this morning, raging that it was "outrageous" and that "they've changed the rules of the game, and the shape of the ball".

He hasn't spoken in public since.

I guess he may be lying somewhere in a darkened room, wondering about the shattered future.

Mr Coupe once said that his company would struggle to compete without this merger.

He was then caught humming "we're in the money" to himself as he waited to talk about the deal.

Neither of those incidents is ageing well.

However angry he was in public, both Sainsbury's and Asda are even angrier behind the scenes.

© Reuters

They feel the CMA's report completely misunderstands the fast-changing nature of modern retail.

For a start, they believe it misunderstands the changing nature of the grocery market, focusing too much on competition between the likes of Sainsbury's, Asda, Tesco and Morrisons, and underplaying the importance of Aldi and Lidl, as well as online companies like Ocado and Amazon, or food delivery companies such as Just Eat and Uber Eats.

"This report feels like it was written by people who don't understand the industry," said one insider to me.

"They know the facts of where we've been, but don't grasp where we're going."

© Getty

For another, they are baffled that the merger between Tesco and Booker was waved through just over a year ago with no conditions at all, yet here they are facing prohibition.

"That makes no sense at all," said a different source at one of the companies involved in the merger.

"You cannot have one set of rules for Tesco and Booker, and another for Sainsbury's and Asda."

There is genuine, deep-rooted anger here.

The partnership of Sainsbury's and Asda feel they have been misrepresented and are now at risk of being robbed of a deal they both consider crucial.

Asda CEO Roger Burnley © Getty Asda CEO Roger Burnley

For Mr Coupe and the Asda boss, Roger Burnley, almost everything rides on this deal.

This process has already thrown up one judicial review, about the timing of submissions.

Should the CMA stick to its guns, and recommend prohibition, then another judicial review would feel certain.

Somewhere in the head offices of both companies, I suspect, the paperwork is already being prepared.

Related: The biggest casualties of the UK's continuing high street crisis (Lovemoney)

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