The Proposed Merger Between Sainsbury And Asda Has Been Blocked By The CMA

 The proposed merger could raise prices for consumers, competition watchdog of the UK said (Competition and Markets Authority).

The proposed merger between Sainsbury and Asda would have created the largest retail chain in the UK and accounting for £1 in every £3 spent on groceries.

Earlier, both the supermarket companies said that the proposed association could help them to cut the costs and pass it to the consumers across the UK.

Market Share of Supermarket companies based-out in the UK

Source: BBC

What made the competition watchdog worried about the deal?

UK's competition watchdog raised concerns over the deal since it was proposed by both the supermarket groups, it said the proposed agreement could dent the retail industry, through intense price war.

UK’s competition watchdog Chief, Stuart McIntosh said in an interview that, “this will reduce competition in the brick & mortar retail, online grocery and at the petrol pumps as well.’

The Merger between two dominant supermarket companies will lead to higher prices which would not appeal to the shoppers, Stuart added.

The Chief of Asda, Roger Burnley said that I am disappointed with the decision of the regulator, and added that we were negotiating a potential merger with Sainsbury which would have delivered an excellent benefit for customers.

Sainsbury's management said that the competition watchdog has blocked the deal and misunderstood the potential outcome on the market competition.

UK's competition watchdog has said that we have surveyed 60,000 customers of the Supermarket companies.

The cost-saving promise, which was made by both the supermarket companies, which will not likely to be materialised, Mr Stuart said.

Sainsbury and Asda presence in the UK

Source: Global Data and BBC

Stock Performance – Sainsbury Plc

3-day Price Chart (as on April 26, 2019), before the market close. (Source: Thomson Reuters)

Post-UK's competition watchdog decision to block the proposed merger deal between Sainsbury and Asda, the shares of Sainsbury Plc tumbled by 4.68% to GBX 216.0 against the previous day close price. At the time of writing (as on April 26, 2019, at 11:47 AM GMT), shares of Sainsbury Plc were quoting at GBX 217.51 and added 1.9 points or 0.95% against its previous day closing.

In the past one-year, shares have registered a 52w high of GBX 341.80, and a 52w low of GBX 212.10 and the current price level, as quoted in the price chart, shares were trading 36.81% below the 52w high price level.

Also, shares were trading considerably below its 30-day, 60-day and 200-day simple moving average (SMA) price, which usually considered to be a bearish technical trend and a potential fall in the market capitalisation could be possible.

The outstanding market capitalisation of the company stood at £4.77 bn, and at the current market price, the dividend yield of the company stood at 4.17%.

Higher dividend yields as compared with the sector and FTSE 100 could be possible because of the steep plunge in the share price over the past year. On a yearly basis, the stock has delivered a negative return of 19.04%, and on a 3-months basis, the stock was down by 23.59%.