Sainsbury's walked away from winter merger talks with Morrisons

The formal talks are over. Whether they restart depends on the Competition and Markets Authority. The regulator weighs a grocery merger store by store, estimating its effect on shoppers from drive times around each site ^[20]. Its August finding means Aldi and Lidl are now taken into account in that local test ^[6]. On that basis, the Guardian reports, Sainsbury's might have to sell dozens fewer stores to win clearance than the 150 suggested when it bid for Asda ^[20][4]. The 2019 figure equals a quarter of the 600 supermarkets Sainsbury's runs today ^[15].

Clive Black, an analyst at Shore Capital, said the CMA's preliminary ruling indicates "the shape of the pitch has adjusted a little" and that "the change encourages another chapter of consolidation" ^[8]. Black is also Sainsbury's broker ^[9]. In 2019, analysts accused Mike Coupe, then running Sainsbury's, and his board of "arrogance" and "folly" for pursuing Asda ^[14]. The CMA is now led by Doug Gurr, a grocery veteran who has worked at Asda and Amazon, under a government growth agenda the Guardian describes as more welcoming ^[13].

Sainsbury's spent the winter at the table and chose to leave. The Guardian's account does not say why. The talks ended in February, roughly six months before the CMA's provisional view on the discounters ^[16]. Sainsbury's made its call before that finding existed. Simon Roberts, Sainsbury's boss for six years, has at least shown he will consider buying a troubled rival, the Guardian reported ^[12].

The second route is a merger of the two weaker chains. "The three of them, one way or another, are talking to each other," one industry expert told the Guardian ^[22]. That person, who is not named, judged an Asda-Morrisons deal likely to be weaker than a Sainsbury's takeover of either, because both are struggling with costs and interest on their debt ^[23]. Asda has struggled to find growth since a £6.8bn debt-funded takeover in 2020 ^[11].

Few buyers are in a position to act. The Guardian, citing analysts, reports that Tesco is too big to buy a rival, while Marks & Spencer and Waitrose appear to lack the money or the desire ^[18]. One analyst called Sainsbury's the "kingmaker" because it alone has the resources to buy a rival without the market dominance that would stop the deal at once ^[17]. Another said Amazon might be prompted to act by any supermarket merger announcement ^[19].

The forecast that Asda or Morrisons or both could disappear within a decade comes from unnamed industry watchers, according to the Guardian ^[24]. For suppliers, landlords and staff at the two chains, the event inside this quarter is the CMA's final ruling ^[7]. In my view the disposal list matters more to them than the ten-year forecast, because sold stores are where a merger first reaches individual leases and jobs. If the ruling confirms the August view, any bidder would start with a shorter list of stores to sell than Sainsbury's faced in 2019 ^[20].