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Blow to Walmart as regulator warns on Asda-Sainsbury's tie-up



Sainsbury's attempt to merge with Walmart-owned Asda was never going to end well after retail giants took the U.K.

On Wednesday, the Competition and Markets Authority got its revenge in a major blow to what would have created Britain's largest supermarket chain in a £ 12 billion ($ 15.6 billion)

"The CMA has provisionally found extensive competition concerns as part of its in-depth investigation,"

This ruling sent shares of J. Sainsbury PLC

                            
                            
                                  
      
      
      
      
      
      
      
      
      
                            
                                     SBRY, -1

3.30%

tumbling 15.14%, with the future of the deal hanging in the balance

The provisional ruling, which has been slammed by some as out of touch with the changing retail (19659002) The Asda, acquired in 1999 by Walmart Inc., is a registered trademark of Asda, Inc.

                            
                            
                                  
      
      
      
      
      
      
      
      
      
                            
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and Sainsbury's said in a statement: "These findings fundamentally misunderstand how people shop in the UK. today, "with Sainsbury's chief executive, Mike Coupe, adding in a radio interview:" [The CMA] have fundamentally moved the goalposts, changed the shape of the ball and selected a different playing field. "

had seen a tie-up as the answer to threats from online giant Amazon Inc.

                            
                            
                                  
      
      
      
      
      
      
      
      
      
                            
                                     AMZN, + 0.33%

and smaller rival Ocado Group PLC

                            
                            
                                  
      
      
      
      
      
      
      
      
      
                            
                                     OCDO, + 0.47%

OCDDY, + 4.29%

and discounters Lidl and Aldi

Grocery retailers have struggled as seismic shifts have swept through the sector in recent years.

The legacy chains are a fierce competition from discounters and have been hurt by changing shopping habits.

The High Street used to be dominated by four big players, Tesco, Asda, Sainsbury's and Wm. Morrisons Supermarkets PLC

                            
                            
                                  
      
      
      
      
      
      
      
      
      
                            
                                     MRW, -5.42%

and buyers tended to buy supplies in one main supermarket trip. But the weekly shop has been replaced by shoppers making multiple visits to smaller convenience stores as customers in the wake of the financial crisis to save money and create less waste.

Grocers with smaller neighborhood shops, such as the Co-op, have found themselves better placed than many of the legacy chains stuck with their large supermarket footprints and fewer buyers

Consolidation has been seen as a way of helping these chains cut costs, largely in the back office, making these stores economically viable and keeping prices down.

But the regulator did not see it this way, causing critics to conclude it is stuck with an outdated view of the market.

"While we need to see if Sainsbury and Asda can argue and legally challenge CMA's findings, the deal looks to have suffered a deadly blow," Clive Black, an analyst at Shore Capital broker, wrote in a note.

Sainsbury's and Asda will further argue in defense of the deal that there has also been a big shift towards buyers buying their groceries online

This is an area where Amazon

                            
                            
                                  
      
      
      
      
      
      
      
      
      
                            
                                     AMZN, + 0.33%

is trying to gain scale, and Ocado, which has no stores, is a strong player. These are both rivals with scale that Sainsbury's and Asda can argue represents healthy competition. The pair also suffered from shoppers heading to no-frills chains Aldi and Lidl, which offer less selection but cheaper products.

The duo will try to argue this more fragmentary market shows the dominance of legacy players is waning.

The big four grocers now control just over two-thirds of the grocery market, according to market research firm Kantar.

Asma-Sainsbury's tie-up could lead to weakening competition, driving higher prices, hurting shopping experience and reducing the range and quality of products offered.

Relations between Sainsbury's and Asda and the CMA have not been helped after a court ruled that the CMA had acted unfairly in not allowing the groceries more time to respond to evidence submitted as part of this investigation.

The CMA process is now going through a consultation process and Sainsbury's has vowed to fight against its merger, which would have seen it retain both brands benefiting from buying savings

The tie-up, which was agreed in April last year, would have seen the combo overtake Tesco

                            
                            
                                  
      
      
      
      
      
      
      
      
      
                            
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TSCDY, + 0.79%

as Britain's largest retailer, with revenues of around £ 51 billion and more than 2,800 stores in possession of 31.2%

Walmart was set to receive £ 3 billion and take a 42% stake in the combined business. The U.S.

The regulator's ruling leaves Walmart with a problem in the UK: Asda has struggled in recent years, although it posted its seventh consecutive quarter of sales growth on Tuesday, up 1% over the past three months.

It comes as Walmart reported fourth-quarter results on Tuesday that beat analysts' consensus forecasts

Read: Walmart is not seeing the consumer downturn that the December retail sales collapse suggested

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