Sainsbury-Asda Merger Competition Ruling Is Set for Thursday  

(Bloomberg) -- The U.K.’s antitrust regulator will publish its final decision Thursday on J Sainsbury Plc’s 7.3 billion-pound ($9.4 billion) plan to buy Walmart Inc.’s Asda, after attaching harsher-than-expected conditions to the deal in February.

Sainsbury’s attempt to buy the grocer -- which would create the biggest U.K. supermarket chain -- looked close to collapse in February after the Competition and Markets Authority said in a provisional report that even with substantial store sales, the deal would likely mean higher prices and less choice for shoppers. Sainsbury shares plunged the most in a decade on the report.

Since then, Sainsbury has offered to sell between 125 and 150 stores to a rival, and pledged 1 billion pounds in price cuts, as it seeks to overcome the regulator’s hostility. If approved, the transaction would give the merged company more purchasing power to compete with the German discounters Aldi and Lidl, as well as online upstarts.

“Sainsbury’s will be holding out for a miracle,” Richard Curry, a partner at property consulting firm Rapleys who covers the U.K. grocery sector, said by phone. “The CMA has given every indication that they won’t approve the merger.”

Sainsbury shares fell 2.4 percent to 224.9 pence at 10 a.m. in London, making the company the second-biggest decliner in the U.K.’s FTSE 100 Index. They’ve declined 15 percent this year, compared to an 11 percent rise in the index, which tracks the shares of the country’s largest companies.

A Sainsbury spokeswoman and an Asda spokesman declined to immediately comment. The CMA gave the date in a filing Tuesday.

Sainsbury’s market share fell by 0.6 percent in the last 12 months, causing it to lose its place as Britain’s second-largest supermarket to Asda last month, according to data by Kantar.

The antitrust review has been filled with tension between the CMA and Sainsbury, which went to court last year to get more time to respond to some of the regulator’s requests for information.

“It will be challenging to shift the CMA’s provisional thinking” on all the issues it raised in its report, said Stephen Wisking, a competition lawyer at Herbert Smith Freehills in London. But “there may be a way through” if the competition body decided local overlaps were the main issue and accepted that divestitures were a good enough solution, he said.

The regulator said in its provisional finding that the merger would hurt competition for grocery supplies nationally, specifically in 629 local areas where both Sainsbury and Asda operate supermarkets. That covers 45 percent of Sainsbury’s stores and 57 percent of Asda’s. Convenience-store competition would also be affected in 65 areas, the CMA said.

Considerable Trouble

“I would be genuinely shocked if the CMA has rowed back on its initial findings,” said Clive Black, an analyst from Shore Capital, which is a broker to Wm Morrison Supermarkets Plc, a rival to Sainsbury and Asda. “I think Sainsbury’s could be in quite considerable trouble if the CMA does not change its mind.”

To address those concerns, the regulator suggested that the combined company might need to sell off one of its brands.

In response, the companies argued that the regulator got its math wrong and was duped about a rival’s intentions.

Lambros Kilaniotis, a competition lawyer at law firm RPC in London, said while rare, it’s “not unheard of” for the regulator to make changes in a final report that allow a deal to pass muster.

He said he’d be “shocked” if the CMA changed its position completely, but that the antitrust regulator may say the situation is “not as bad as we said in the provisional findings,” paving the way for a deal on store sales.

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