CMA rejects Sainsbury's and Asda's appeal for more time

UK competition authorities have told Sainsbury's and Asda they must stick the the current timetable, after the pair pleaded for more time to argue the case for their proposed £12bn merger.

Faced with a "large amount of material" after evidence was given at the Competition & Markets Authority's hearings with the supermarket industry last week, Sainsbury's has lodged an appeal to be given 11 extra working days over the Christmas period to prepare their response.

Following the hearings last week, where rival supermarkets gave their opinions on the tie-up to the CMA, the regulator is due to notify Sainsbury's and Asda parent Walmart of its provisional findings and possible remedies in early January with response hearings in early February, ahead of a statutory deadline for the Phase 2 investigation of 5 March 2019.

In a statement on Wednesday morning Sainsbury's said that, together with Asda, it was requesting a judicial review of the CMA's "timetable and process" as they believe the current timetable "does not give the parties or the CMA sufficient time to provide and consider all the evidence given the unprecedented scale and complexity of the case".

In a response statement issued later on Wednesday, the CMA suggested the companies' request for more time would be turned down as merger investigations of this size "always require assessing a large volume of material in a short timeframe", pointing out that other companies have been given similar timelines.

"We have done everything we can to aid their consideration of this work, whilst still ensuring we are able to meet our legally-binding deadline," the CMA said. "This includes extending certain administration timelines where appropriate."

It added: "If we gave the companies the extra time they are now asking for, it would put our ability to complete the investigation by the required deadline at very serious risk. As with all of our merger reviews, we construct our timetable to ensure that everyone has the chance to have their say, including customers, the companies involved and suppliers."

COMPETITION CONCERNS

In the first phase of its investigation, the CMA, now led by former treasury committee 'rottweiler' Andrew Tyrie, warned that the merger posed a "substantial risk" to competition in 463 locations and in the hearings earlier this month rival grocers including Tesco, Morrisons, Lidl and Waitrose warned that it would severely affect competition in the sector.

Tesco argued that the merger could lead to higher petrol prices, said there were "few customer benefits" and said the proposed savings seemed to rely on harmonising costs and prices from suppliers and "that this is a big ask when the merging parties do not appear to be able to offer suppliers very much in return". Tesco proposed that the deal could not go ahead under existing precedent without "extensive remedies”.

Others raised the point that the combination will lead to general lowered competition as the deal will result in around 60% of the market will be controlled by Tesco and the merged entity, with an impact also on suppliers and eventually increased prices.

Sainsbury's said that it remained "confident in the merits of the deal and our ability to deliver the synergies", pledging to "invest further in range, quality and customer service, while lowering prices and reducing the cost of living for millions of UK households".

SHORT-TERM HURDLE?

Shares in Sainsbury's fell almost 5% to 282.2p by midday on Wednesday.

After discussion with the company, analysts at UBS said they believed the decision to seek a judicial review "is related to procedure and process, rather than specific content within material received from the CMA".

They added: "However, it does appear management sees risk of the process potentially not being run as exhaustively as it could. Until more details are available we expect the market's initial reaction will be to price-in lower likelihood of the deal closing, taking into consideration that the Judicial Review may reflect management's view on the likely Phase 2 outcome "

Bruno Monteyne at Bernstein said the news was "a short-term negative" but the competition process "potentially adds further delay".

Sainsbury's emphasis that the review is about process rather than content "implies to us that Sainsbury's is not satisfied with the combination of both", with the CMA and Sainsbury's "probably" not seeing eye-to-eye on the timeline.

While the CMA has the "very standard option" to extend the investigation by an extra eight weeks, with this CMA investigation "seems a prime candidate for an extension as it is not just about groceries but also covers: fuel, clothing, small domestic appliances, online retail", he wondered "why did Sainsbury's feel the need today to push for an additional 11 days through a judicial process?"