Sainsbury’s pledges price cuts to get Asda deal done

UK supermarket Sainsbury’s and its takeover target Asda have committed to deliver £1bn (€1.1bn) of lower prices annually by the third year after completion of their proposed €8.5bn deal.

They also said they would divest supermarkets and petrol forecourts across both brands but did not provide figures.

Sainsbury’s and Asda are trying to overturn brutal provisional findings from Britain’s competition regulator, the Competition and Markets Authority (CMA), which is examining the deal.

The CMA said last month its initial view was that Sainsbury’s purchase of Walmart’s Asda should be blocked in the absence of the sale of a large number of stores, or even one of the brands.

Sainsbury’s and Asda said they strongly disagreed with the CMA’s findings and said the regulator’s analysis contained “significant errors”.

The two groups said they would invest £300m in the first year after combining and a further £700m over the following two years as cost savings flow through.

Sainsbury’s and Asda had previously said they would lower prices on “everyday items” by around 10%, financed by cost savings from big multinational suppliers but had not quantified the impact in cash terms. The two groups said the price commitments would be independently reviewed, with the results published in order to hold them to public account.

Sainsbury’s said it would cap its fuel gross profit margin to no more than 3.5 pence per litre for five years, while Asda will guarantee its existing fuel pricing strategy.

Sainsbury’s also committed to pay small suppliers, with turnover with the business of less than £250,000, within 14 days, while Asda will continue to pay its small suppliers within 14 days. The regulator will publish a final ruling by April 30.

Sainsbury’s chief executive Mike Coupe, seen as the architect of the deal, could come under investor pressure if it fails.

Industry data published earlier this month also showed Sainsbury’s continuing to underperform rivals in Britain, including market leader Tesco and No. 4 Morrisons. At current run rates, Sainsbury’s could lose its No 2 status to Asda when the next data set is published on April 30.

Reuters

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