How can the merged group possibly get away with grabbing a 31.4 per cent share of the grocery market and not expect the Competition and Markets Authority (CMA) to demand store disposals?
When Morrisons bought Safeway in 2004, the authorities (in those days it was The Competition Commission) insisted it sell off 52 stores.
We need to bear in mind that the enlarged Morrisons/Safeway had a paltry market share of 12.4 per cent once the deal was completed in 2004, much less than half the combined Sainsbury’s/Asda market share.
So the idea that Sainsbury’s/Asda won’t be told to offload stores seems ludicrous. Sources are saying that Sainsbury’s has accepted that the CMA will probably tell it to offload between 75 and 100 stores.
The market hasn’t changed that much since 2003, when only Morrisons was allowed to bid for Safeway.
After a five month investigation, the competition watchdog blocked Morrisons’ larger rivals - Tesco, Sainsbury’s and Asda - from trying to buy the 480-strong Safeway chain.
The Competition Commission said that if it allowed one of the bigger three supermarkets to buy Safeway, it would be against the public interest.
A 500-page report in 2004 concluded that if Tesco, Sainsbury’s or Asda were allowed to buy Safeway, they could use their buying power to squeeze suppliers.
On Monday Sainsbury’s CEO Mike Coupe tried to play down the supplier squeeze angle, saying that 85 per cent of Sainsbury’s/Asda business is with the top 100 suppliers, namely large multi-national businesses such as Unilever and Procter & Gamble.
Proponents of the Sainsbury’s/Asda merger have said that the market place is very different now to how it was in 2003. They claim that the success and growth of the German discounters, Aldi and Lidl, have transformed the market.
It’s true that the discounters have stormed the UK market since 2003, but they still have just 12.6 per cent of the market (Aldi has 7.3 per cent and Lidl has 5.3 per cent according to the latest Kantar Worldpanel data).
There is also the argument that online giant Amazon is about to make its mark on the UK grocery market, but at the moment it is small fry.
Another argument is that online sales weren’t really around in 2004 and therefore there is much greater competition now, but online only makes up a small part of the UK grocery market.
Then there is the Tesco/Booker precedent. The CMA waved through the Tesco/Booker deal last year, which has led to some commentators saying the CMA has lost its teeth and will waive through the Sainsbury’s/Asda deal.
But Tesco/Booker was about a retailer and a wholesaler. Sainsbury’s/Asda is about a retailer and a retailer.
Regulators don’t like Big Fours becoming Big Threes, as we have learned from the banking sector.
Regulators have always baulked at one of the Big Banking Four (Lloyds Banking Group, HSBC, RBS and Barclays) merging with each other. They would not countenance it under any circumstances.
The major exception was Lloyds’ takeover of HBOS at the height of the banking crisis 10 years ago, but that was a Government-supported deal to prevent HBOS going belly up.
Another factor is that the CMA is no longer a toothless beast now that Andrew Tyrie, the former chair of the Treasury select committee, has been appointed head of Britain’s competition watchdog.
Mr Tyrie is a much respected interrogator and former Conservative MP for Chichester, who gained notoriety for his select committee grillings of Prime Ministers, Bank of England officials and industry chiefs.
Mr Tyrie is a proven consumer champion and competition advocate, with a strong record of independence as select committee chair.
Will the CMA, under Mr Tyrie, really authorise a duopoly of Tesco and Sainsbury’s/Asda? It is hard to see how that will benefit the consumer in the long run.
There is no way the CMA can pass this merger without store disposals.
But this way, Sainsbury’s/Asda can blame the CMA for closures and job losses. Quite clever really.