Potential that the deal may be blocked led to the retailer’s shares opening down.
Regulator increases pressure on Sainsbury’s over proposed merger
- Concerns over higher prices and a worse consumer experience have led to increased regulatory pressure over merger.
- Sharp decline in odds for the deal happening has a pulled share price down 12.5%.
- We maintain our ‘hold’ recommendation for the time being.
The UK regulator upped the ante on Sainsbury this morning with regard to its proposed merger with Asda and in reply Sainsbury appears to be saying “you don’t know what you’re doing”.
The regulator has come out with a strongly worded statement over its concerns stating that it could lead to a worse experience for consumers as a potential result of higher prices especially for petrol and reduction in products and quality.
So this could mean the deal might be blocked or for them to have to sell more stores than at first thought. A final report from the regulator is set for 30 April.
In response Sainsbury has come out of the blocks quickly and fairly aggressively in stating that it “fundamentally” disagrees.
The shares as a result opened down 15% and have now returned close to pre-deal levels. Market doubts had been growing on the deal and the odds have shortened considerably on the deal being scuppered. For the time being we suggest a medium risk hold.
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