Morrisons/Sainsbury's merger has to be a non-starter

Analysts at Bank of America Merrill Lynch have suggested that Morrisons and Sainsbury’s might hop into bed together as a result of the proposed £3.9bn marriage between Tesco and Booker.

They argue that a merger between number two player Sainsbury’s and number four Morrisons is on the cards because Sainsbury’s is strong in the South and Morrisons is strong in the North.

It also mentions Asda as a possible partner for Sainsbury’s but said: “Although Sainsbury’s differs from both Asda and Morrisons on concept, it is slightly more similar to the latter, making Morrisons the more likely candidate.”

Now Merrill Lynch is a former corporate broker to Morrisons so you might think its analysts know what they’re talking about.

But how on earth a merger between Sainsbury’s and Morrisons is likely to get past the Competition and Markets Authority (CMA) is beyond Blackfriar, who remembers the battle for Safeway in 2003.

Only Morrisons received merger approval so why would the CMA approve a merger between two top four players?

According to the latest Kantar Worldpanel data for the 12 weeks to January 1, Sainsbury’s has a 16.7 per cent share of the market and Morrisons has 10.9 per cent, which would give the combined group a whopping 27.6 per cent share of the market, just shy of market leader Tesco’s 28.2 per cent.

As one analyst said, if the CMA is having kittens about the Tesco/Booker tie-up, it would have apoplexy about a Morrisons/Sainsbury’s merger.

The enforced sell-off of stores would be unimaginable.

The CMA is going to have to roll its sleeves up over the Tesco/Booker wedding with analysts saying that sell-offs will be inevitable.

Britain’s biggest supermarket Tesco has agreed to buy the UK’s biggest wholesaler Booker for £3.7bn in a bid to get into the fast growing restaurant and pubs market.

Independent retail analyst Nick Bubb said: “Our instant reaction is that the Competition and Markets Authority will have a field day with this,” noting that Tesco owns the One Stop chain that competes with Booker’s interest in convenience store retailing.

Analyst Bruno Monteyne at Bernstein said: “CMA approval is required which may mean some store closures in the network.

“Both Tesco and Booker have a similar – around 10 per cent – share of the convenience market. The merger is to be by a scheme of arrangement and requires shareholder approval from both companies.”

Both Morrisons and Sainsbury’s are enjoying the good times and both have chosen to follow very different paths, making a merger even less likely.

Under David Potts, Morrisons is enjoying a renaissance and enjoyed its best performance for seven years over the crucial festive period and raised its profit guidance as customers flock back to its stores.

Bumper sales of prosecco, flower bouquets, reduced price vegetables and party food helped the Bradford-based chain report a better than expected 2.9 per cent rise in like-for-like sales over the nine weeks to January 1.

Chief executive Mr Potts said the group had “found our mojo” over the festive period.

“We sold 2.4 million bottles of prosecco – quarter of a million more than last year,” he said.

“One in six bouquets of flowers came from ‘Mozzers’.”

Phil Dorrell, partner at Retail Remedy consultants, said: “Potts has turned this ship around and whilst navigating a big tanker like this takes time, his grip on the tiller is both clear and strong.”

Meanwhile, Sainsbury’s is in the process of absorbing Argos – a massive task – so it’s a little bit busy at the moment.

One retail analyst said of the Sainsbury’s/Morrisons merger notion: “This idea is total nonsense.

“It’s the worst form of shallow fishing.”