Sainsbury's deal needs more clarity, Shore analysts say
Sainsbury’s takeover of Asda could get competition clearance but much about how the deal will play out remains unclear, Shore Capital analysts said.
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The bosses of Sainsbury’s and Asda, Mike Coupe and Roger Burnley, were questioned by MPs on 20 June. Members of the environment, food and rural affairs committee asked how proposed 10% price cuts for everyday items would affect suppliers.
From an industry perspective more precision is needed on how the price cuts will be achieved, the Shore analysts said, maintaining their ‘hold’ rating on Sainsbury’s shares.
The deal faces widespread opposition but the Competition and Markets Authority will decide. "Sainsbury’s and Asda’s management speak very confidently and they are expensively advised” on competition matters," Shore said.
Sainsbury’s and Asda said small UK suppliers would not bear the brunt of the proposed price cuts but the analysts questioned whether big international suppliers would be happy to do so.
The analysts cast doubt on claims that Amazon was a competitor to the supermarkets. "We have rarely if ever seen Amazon flicker on the radar of grocery market share."
"The regulatory process is one thing, merging two businesses that must compete in public and collude in private could be the most challenging feature of all of this whole exercise, should the CMA permit it to go through,” the Shore analysts said. “We do not sense that Mr Coupe will be the person that ultimately has to be accountable on this front as this is some years away."