Blackfriar: Sainsbury’s and Asda pay the price for sticking their fingers in their ears

Sainsbury’s has taken a £46m hit for its botched attempt to buy Asda because in its hubris, it decided to listen to lawyers and other advisers rather than journalists who warned it a year ago that the CMA would never let the deal through.

Sainsbury's CEO Mike Coupe

Blackfriar was stunned at a dinner with Asda last summer to learn that very few of the management team were aware of the details of the huge battle for Safeway back in 2002/3 when Morrisons was the only supermarket allowed to bid for Safeway. The competition watchdog decided that Morrisons’ bigger rivals were too big to be allowed to buy Safeway.

Instead of listening to journalists, who offered their advice for free, Sainsbury’s and Asda stuck their fingers in their ears, ignored us and instead listened to paid advisers who promised them that the emperor looked wonderful in his new clothes.

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We are yet to find out how much this debacle has cost Asda, but this is a lesson for all companies - advisers aren’t always the wisest source of advice when their pockets are being lined with millions of pounds.

Exactly this time last year, Blackfriar wrote: “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.

“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 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.”

Yet we were told at the time that the advisers knew better than retail journalists who have been covering the sector for 20 years.

Now that the deal has been aborted, many analysts believe it is only a question of time before Asda and Sainsbury’s announce job losses.

Asda’s US parent Walmart has promised to invest in Asda and it must be held to this after years of milking the Leeds-based firm.

However, there is some good news. Leading retail analyst Clive Black at Shore Capital said the decision is “good news for Leeds and Yorkshire”.

“We really did not take at face value the statements that were made by both Sainsbury’s and Asda at the start which were: ‘We’re going to run two head offices and we’re going to keep two fascias’,” said Mr Black.

“If the deal had been approved, within two years we would have seen the deconstruction of Asda in West Yorkshire.”

There were real fears that Asda House could close as a result of a deal with Sainsbury’s and that Asda would take the brunt of any store closures and job losses.

Mr Black believes there is 50/50 likelihood of Asda floating on the stock exchange or private equity buyers coming in.

Both outcomes could be good for Yorkshire as private equity would float Asda after a few years, returning it to the London Stock Exchange after 20 years of Walmart’s ownership.

Walmart must insist that Asda is not subjected to job losses. Its leadership team has done a remarkable job through the past year which has been a grim period for everyone who works at Asda.