Sainsbury’s Asda Defeat Is a Victory for Germany

(Bloomberg Opinion) -- The “Sasda” dream is over.

Almost a year since British grocery giant J Sainsbury Plc clinched a clever 7.3 billion pound ($9.4 billion) deal to buy Walmart Inc.’s Asda, the U.K.’s Competition and Markets Authority has blocked the transaction. Both companies have agreed to walk away.

The CMA is wrong to take such a harsh line, which went even further than its provisional ruling by deciding on an outright ban. The German no-frills supermarkets Aldi and Lidl have changed the shape of British food retail, but the ruling fails to recognize this.

The upstart discounters will only get stronger. British supermarkets will have to continue to do their best to compete, with one potential response – combining as a way to cut costs and ease the pressure from price-slashing rivals – shut off to them. A combined Sainsbury-Asda would have been the U.K.’s number one supermarket chain, but its market share wouldn’t have been so much bigger than current leader Tesco Plc.

Sainsbury’s Asda Defeat Is a Victory for Germany

That said, Sainsbury and Asda are right to walk away, rather than pursue a time-consuming and distracting judicial review. Mike Coupe, Sainsbury’s chief executive, can legitimately say he tried to do a deal that was in the best interests of consumers, employees and shareholders, but was prohibited from doing so.

Now starts the process of rebuilding. Here, Walmart is in a better position, as it could attract a private equity buyer for Asda. Coupe must carry on with his own plan B. He said on Thursday that he was confident in his standalone strategy for Sainsbury. But its performance has deteriorated. His first task is to stem the decline in same-store sales. The company’s shares fell about 5 percent after the CMA announcement, erasing all the gains since the merger was announced. Clearly investors don’t share his optimism.

Sainsbury’s Asda Defeat Is a Victory for Germany

As I’ve argued, Sainsbury may get another chance to acquire Asda. Any private equity buyer of the Walmart asset will eventually seek an exit. But that’s at least five years away.

With Sainsbury’s shares at their lowest point since July 2016, and with a big shareholder on board in the form of the Qatar Investment Authority, you can’t rule out the possibility of a bidder emerging for the British company. It may appeal to Inc., or to private equity – though with Asda available too, that’s an outside chance.

For now, Coupe (if he carries on in the role) must get back to basics. That’s much less exciting than creating what would have been Britain’s biggest grocer. But after the regulator’s ruling, he has few other choices right now.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Andrea Felsted is a Bloomberg Opinion columnist covering the consumer and retail industries. She previously worked at the Financial Times.

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