The Competition and Markets Authority (CMA) said on Wednesday that it has "extensive concerns" about the deal, which was first announced in April 2018, and added that it may not be possible for the two supermarket giants to address its concerns completely. That puts the entire merger under threat.
"We have provisionally found that, should the two merge, shoppers could face higher prices, reduced quality and choice, and a poorer overall shopping experience across the UK," said Stuart McIntosh, the chair of the group within the CMA investigating the deal. "We also have concerns that prices could rise at a large number of their petrol stations."
As such, McIntosh said, the CMA may have no alternative but to block the deal. "It is not clear at this stage that a suitable package of assets could be found to provide an effective and comprehensive remedy," the CMA said in a statement.
The merger between Asda, which is owned by US retail behemoth Walmart, and Sainsbury's, is set to create a supermarket chain with more than 30% of the UK's overall grocery market share. That would make it easily the largest chain in the UK, overtaking Tesco, which currently holds around 28% of market share.
Asda currently has around 630 locations, most of them large supermarkets, while Sainsbury's has over 1,400, although many are smaller, convenience focused stores.
In a joint statement, both Asda and Sainsbury's expressed concerns about the CMA's findings, saying that the merger could actually allow costs to consumers to be lowered, and accusing the watchdog of "moving the goalposts."
"These findings fundamentally misunderstand how people shop in the UK today and the intensity of competition in the grocery market. The CMA has moved the goalposts and its analysis is inconsistent with comparable cases," the two grocers said.
"Combining Sainsburys and Asda would create significant cost savings, which would allow us to lower prices. We are surprised that the CMA would choose to reject the opportunity to put money directly into customers pockets, particularly at this time of economic uncertainty," the statement concluded.
News of the CMA's concerns around the proposed merger sent shares in Sainsbury's sharply downward on Wednesday, with the company's stock price losing as much as 15% in the first minutes of trade.
By around 8.50 a.m. GMT (3.50 a.m. ET) it had recovered marginally, but remained more than 12% lower at 2.51 ($3.27) per share, according to Markets Insider data. As part of Walmart, Asda is not independently listed in the UK.
