LONDON (ShareCast) - (Sharecast News) - UK competition authorities have found 463 local areas where the proposed merger between Sainsbury's and Asda would be problematic.
The Competition and Markets Authority, which earlier this month referred the merger to an in-depth probe, said the supermarket group's stores overlap at 463 locations to the extent that the merger creates a "realistic prospect of a substantial lessening of competition".

Providing the full text version of its decision to proceed to a Stage 2 investigation, the CMA's update sent Sainsbury's share down 2% to just below 313p on Thursday afternoon.

"It's a given that the CMA will demand disposals if it does approve the merger, but this is already be factored in by both Sainsbury's and Asda and indeed some of the presumed synergies from the deal are no doubt in some way based on disposing of a certain number of stores," said market analyst Neil Wilson at Markets.com. "The question is how many stores they need to lose - too many could break the deal."

"But the text from the CMA today suggests it may be less well disposed to this deal than the market had thought."

Discounters, principally Aldi and Lidl, have not been included in the competition assessments as neither sells tobacco, despite contributing a large wedge of the UK grocery market. Sainsbury and Asda requested that Aldi and Lidl are regarded as bona fide competition and for geographic catchments to be widened in favour of the merger.

However, Wilson noted that would also catch more of Sainsbury's convenience stores in the net.

"It seems rather odd that the sole basis of the merger - the march of the German discounters - is not seen as a factor by the CMA in its competition assessments," he said.

The CMA said that the methodology used for the local assessment in the deeper Phase 2 investigation "may vary" and the areas identified in the Phase 1 decision "are therefore not intended to act as the starting point from which the Phase 2 analysis will develop".

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