Walmart's ASDA Merger With Sainsbury Is Off -- What Is Next? - Forbes

UK regulators have blocked the merger of ASDA with Sainsbury. The final word just came from the Completion and Market Authority (CMA) who found that the merger would lessen competition at both the local and national level.

The chair of the CMA inquiry group said, “We have concluded that there is no effective way of addressing our concerns, other than to block the merger”. This final word means that the current competitive structure is still intact. Tesco remains number one, and Sainsbury is number two in the supermarket business in the UK. ASDA is number three, and a merger with ASDA would have pushed Sainsbury into first place.

CMA felt that all shoppers across the UK would be affected, not just in the areas where Sainsbury and ASDA overlapped.

All food retailers have been under competitive pressure since Aldi and Lidl made their aggressive entry into the UK market several years ago. As the result of the entry of these German discounters, there has been terrific competitive pressure for all supermarkets in the UK. I expect that pressure to continue.

What are Walmart’s options? A merger with Tesco is impossible since the leader will not be allowed to grow through any acquisition. Instead, I think it is likely that Walmart will spin off ASDA as a free-standing company that will go public. Of course, there is a possibility that a private equity firm will step up and acquire the company. But, the bottom line is that Walmart is likely to be out of this business in the UK.

I always regarded ASDA as a well-run company with quality food and imaginative general merchandise offerings. Some labels, like the George brand, even found a home in Walmart stores and added to the luster.

Conclusion: Do not underestimate the power of regulators. Walmart has now encountered restrictions in India as to what can or cannot be sold and, in the UK, as to what can or cannot be merged. These decisions send a message for all retailers and will likely force them to rethink growth strategies. There is also a message here that tells customers that they will continue to have competitive choices.

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