U.K. blocks Sainsbury-Asda deal

British regulators blocked Sainsbury's 7.3 billion-pound (CDN$12.7 billion) purchase of Walmart's Asda unit on Thursday amid concerns the deal would have increased prices and reduced the quality and range of products available. For Walmart, it's another setback as it tries to refocus its international operations on higher-growth markets.

The Competition and Markets Authority said the deal creating the U.K.'s biggest supermarket chain would lead to a poorer overall shopping experience across the country, even in places where there was no direct overlap. It also found that motorists would be forced to pay more at over 125 locations where Sainsbury and Asda have gas stations near one another.

"We have concluded that there is no effective way of addressing our concerns, other than to block the merger," said Stuart McIntosh, who led the agency's review of the deal.

J. Sainsbury Plc announced plans to buy Asda last year as it sought to cut costs amid competition from discount chains that have increased their share of the U.K. grocery market.

Walmart, meanwhile, is pulling back from its international operations as it faces challenges establishing its budget shopping model in foreign markets and focuses on big growth opportunities. Based in Bentonville, Arkansas, Walmart operates stores under 55 banners in 27 countries outside the U.S. It gave up in Germany and South Korea in 2006, and it closed 10% of its Brazil stores in 2016 as it looked to restructure its operations. In many overseas markets, Walmart has lacked the scale to press local suppliers on price as it does in the United States.

Walmart's international business, which accounts for about 24% of its total revenue, rang up US$120.8 billion in sales for the fiscal year ended Jan. 31.

But the retailer has been responding to the various landscapes and differing consumer behaviours, and teaming up with local partners when it realizes it can't go it alone. One example is China, where more than 700 million people are online and where it has a partnership with Chinese online retailer JD.com.

 

Sainsbury said in a statement that it had agreed with Walmart and Asda to "terminate the transaction," even as CEO Mike Coupe insisted the decision ignored the "dynamic and highly competitive nature of the U.K. grocery market."