The proposed merger of Sainsbury's and rival supermarket operator Asda would be viable even if regulators forced the group to dispose of 132 or more stores, Sainsbury's house broker, UBS, has reported.
Sainsbury's and Asda, which is owned by Walmart, agreed the £7.3 billion (€8.4 billion) deal in April last year, and it is currently being probed by Britain's regulator, the Competition and Markets Authority (CMA).
The CMA has reported that it will publish its preliminary findings by early February.
Analysts at UBS said that, based on disclosures from a recent Competition Appeal Tribunal (CAT) ruling, the CMA's best estimate appears to be the week commencing 11 February.
Sainsbury's and Asda have reported that they expect the CMA to insist on store disposals as a condition for clearing a deal that could allow them to overtake Tesco as Britain's biggest retailer.
'Assuming zero disposal proceeds, merger economics can absorb at least circa 132 remedy stores and potentially dozens more,' the UBS analysts reported in a note, referring to the number of stores that might have to be sold.
They have a base case of 28-54 remedy stores, rising to 132-161 if discounters Aldi and Lidl are excluded by the CMA's analysis as mainstream competitors.
'Thus, we see scope for deal close, even if the CMA adopts a narrow market definition,' the UBS analysts reported.
Finding buyers for large stores in an industry increasingly moving online and to smaller convenience shops will not be easy.
Competitive Divestment Process
However, the UBS analysts said that they expected the divestiture process to be competitive.
"Tesco is unlikely to have full penetration in remedy areas, and non-traditional and/or financial buyers could potentially emerge," they said.
Another note published on Tuesday by Bank of America Merrill Lynch (BoAML) reported that the economics of the precise stores up for disposal, rather than the total number, is the critical factor.
"Even a high disposal number would not be a risk to the deal, in our view," said analysts at BAML.
Sainsbury's has about 606 supermarkets and 815 convenience stores, and operates 311 petrol-filling stations. Asda has about 584 grocery stores and 317 petrol-filling stations.