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UK competition probe could halt Sainsbury's-Asda deal

U.K. supermarket chain J Sainsbury PLC could walk away from the proposed merger with Walmart Inc.-owned rival Asda Stores Ltd. if the regulatory conditions for the deal have too great an impact on profitability, the company's CEO Mike Coupe told the Financial Times (London) in an interview Sept.9.

The U.K.'s Competition and Market Authority, or CMA, could proceed directly to an in-depth probe of the deal as early as this week, the report said. In August, The Times (London) reported that the CMA could call for the sale of up to 300 stores.

Coupe said that if the remedies demanded by the regulator cause EBITDA to fall below a certain threshold, both Sainsbury's and Asda would have the right to walk away from a deal, according to the FT report.

The report added that the combined company formed without divestments would surpass Tesco PLC as the largest U.K. supermarket operator, with a market share of 31% based on Kantar data.

"It is certain that stores will need to be disposed of — the million-dollar question is how many and to whom, and we will work with the authorities on that," Coupe told the FT.

Sainsbury's on April 30 said that it will acquire a majority stake in Asda for £2.98 billion, creating a company with more than 2,800 stores with an expected workforce of 330,000 people.

Sainsbury's previously said the combined group would generate net cost savings of £500 million by buying produce at the lowest price each company pays, although Coupe told the FT that the figure could end up being much higher. Analysts have estimated that gross savings could be between £1 billion and £1.5 billion, according to the report.

Coupe reportedly said he is hopeful that the deal would be approved despite the CMA probe and intense political scrutiny: "We wouldn't be doing it unless we thought we stood a pretty good chance of getting it through."

A spokesperson for Sainsbury's confirmed the interview to S&P Global Market Intelligence.