Sainsbury and Asda Opposed to Selling Either Brand to Save $9.5 Billion Deal

(Bloomberg) -- J Sainsbury Plc and Walmart Inc.’s Asda aren’t willing to divest either of the two brands to save their $9.5 billion merger that’s been thrown into doubt by a report from the U.K. antitrust regulator, people familiar with the situation said.

Neither brand would be open to being sold to gain Competition and Markets Authority approval of the transaction, according to the people, who asked not to be identified because the information isn’t public.

The chains’ resistance flies in the face of the CMA’s recommendation Wednesday that a divestiture of either the Sainsbury or Asda brand would be necessary for the deal to move ahead. While the two grocers had planned to sell some of their stores, that wouldn’t address competition concerns in hundreds of markets across the country, the agency said in provisional findings.

Selling one of the brands “would be required to ensure that the package of divested assets can compete effectively,” the CMA said in its report.

“We will be working to understand the rationale behind these findings and will continue to make our case in the coming weeks,” Sainsbury wrote in its response to the report. The shares fell as much as 16 percent in London, the most since 2008.

The regulator is unlikely to change its view by the time of its final report in April, according to James Anstead, an analyst at Barclays.

“We therefore assume that the proposed merger will have to be abandoned,” he wrote in a note to clients, “even though Sainsbury and ASDA may not openly accept the inevitability of that outcome at this stage.”

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