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Sainsbury's, Asda offer up to 150 store closures to secure merger

U.K. grocers J Sainsbury PLC and Asda Stores Ltd. on March 22 offered to close between 125 and 150 stores in order to gain regulatory approval for their merger.

The Competition and Markets Authority, or CMA, said Feb. 20 that it may block the deal as it would result in "higher prices, a poorer shopping experience, and reductions in the range and quality of products offered" to customers online and in stores. The watchdog asked the companies "to sell off a significant number of stores and other assets — potentially including one of the Sainsbury's or Asda brands — to recreate the competitive rivalry lost through the merger."

In response, Sainsbury's and the Walmart Inc. unit offered a proposed remedy package, which includes the divestment of up to 150 of their stores and the sale of a number of filling stations, likely about 38, to either grocery buyers or fuel operators. The pair also said they would be willing to discuss with the CMA its concerns over their online grocery businesses, even though they "strongly believe that a remedy is not necessary or proportionate."

The two grocers said their proposal is based on "a more credible finding of [substantial lessening of competition]." They used a gross upward pricing pressure index, or GUPPI, of 5% in their computations versus the CMA's GUPPI of 2.5% in its initial findings.

Sainsbury's and Asda also said the CMA made a "multitude of fundamental errors and flaws" in its understanding of the competitive landscape, which the retailers claimed was "fundamentally incoherent and/or at odds with any real-world sense checks."

Both companies have made multiple attempts to reverse the initial ruling, with Sainsbury's accusing the regulator of making miscalculations in analyzing the deal and insisting that the merger will deliver £1 billion worth of lower prices to consumers annually.

The CMA said it will issue its final decision on the matter by April 30. U.S. private equity firm KKR & Co. could make a bid for Asda should the deal fall through, The Sunday Times reported in February.