The Competition and Markets Authority (CMA) has ruled today that the proposed merger cannot go ahead, as UK shoppers would be “worse off” due to reduced competition in the market, with expected price hikes and a drop in quality. But Sainsbury’s accuses the watchdog of taking £1billion out of shoppers’ pockets.

The deal had been in doubt since the CMA issued an earlier report suggesting it was faced with limited options, including ordering the two retailers - the UK’s second and third-largest grocery chains – to sell off a “significant” number of stores to a suitable party, and potentially ditch either the Sainsbury's or Asda brand. However, the CMA concluded today that there is no effective way of addressing its concerns, other than to block the merger.

CMA inquiry group chair Stuart McIntosh said: “It’s our responsibility to protect the millions of people who shop at Sainsbury’s and Asda every week. Following our in-depth investigation, we have found this deal would lead to increased prices, reduced quality and choice of products, or a poorer shopping experience for all of their UK shoppers.

As a result, Sainsbury’s CEO Mike Coupe explained that Sainsbury's, Walmart and Asda have mutually agreed to terminate the transaction but insisted the CMA was actually robbing shoppers of potential savings. He said: “The specific reason for wanting to merge was to lower prices for customers. The CMA's conclusion that we would increase prices post-merger ignores the dynamic and highly-competitive nature of the UK grocery market. The CMA is today effectively taking £1billion out of customers' pockets.”

A group of independent CMA panel members concluded that the deal would result in “a substantial lessening of competition at both a national and local level for people shopping in supermarkets,” meaning shoppers right across the UK would be affected; not just in the areas where Sainsbury’s and Asda stores overlap.

The CMA’s investigation found that, as well as affecting in-store customers, the merger would result in increased prices and reduced quality of service, such as fewer delivery options, when shopping online. Furthermore, it would lead to motorists paying more at over 125 locations where Sainsbury’s and Asda petrol stations are located close together.

In making the decision to prohibit the merger, the Group reviewed a wide range of issues in detail, such as the increased competition presented by discount stores like Lidl and Aldi, and how new or expanding competitors could affect the retail market, including online. Whilst the panel carefully considered these industry developments, they did not allay its serious competition concerns about the merger.

The Group also carefully reviewed the companies’ statement promising they would cut some prices. However, detailed analysis of the impact of the deal clearly showed that, overall, the merger would reduce competition in the market and is more likely to lead to price rises than price cuts.

This final decision to block the deal follows the publication of the CMA’s provisional findings and a subsequent consultation period, during which the CMA reviewed responses from a variety of interested parties, including Sainsbury’s and Asda themselves.

Mr Coupe concluded: “Sainsbury's is a great business and I am confident in our strategy. We are focused on offering our customers great quality, value and service and making shopping with us as convenient as possible.”