Britain's competition regulator has blocked Sainsbury's proposed £7.3 billion ($9.4 billion) takeover of Walmart owned Asda - a huge blow to the supermarket groups who wanted to combine to overtake market leader Tesco.
The Competition and Markets Authority (CMA) said on Thursday that the deal would lead to increased prices in stores, online and at many petrol stations across the UK.
A Mutual Agreement
Sainsbury's, Walmart and Asda said they had mutually agreed to terminate the transaction, opting not to challenge the CMA's ruling through the Competition Appeal Tribunal, a specialist judicial body, which could have thrown it back to the CMA.
Sainsbury's and Asda agreed the deal in April last year. As well as leapfrogging Tesco, it also would have given Walmart a way to exit Britain, one of the weakest performers in its global portfolio.
However in its final report the CMA found that UK shoppers and motorists would be worse off if Sainsbury's and Asda combined.
The regulator concluded that the deal would result in a substantial lessening of competition at both a national and local level. It said this would mean shoppers right across the UK would be affected, not just in the areas where Sainsbury's and Asda stores overlapped.
'No Effective Way'
"We have concluded that there is no effective way of addressing our concerns, other than to block the merger," said Stuart McIntosh, chair of the CMA inquiry group.
Sainsbury's shares have fallen 18% over the last three months, indicating an expectation the deal would not proceed. They closed Wednesday at 226.6 pence, valuing the business at £5 billion.
Sainsbury's and Asda both have just over a 15% share of the UK grocery market, and combined would have overtaken Tesco, which has 27.4%, according to the latest data from market researcher Kantar.
The two groups had said their share of the total market for food was smaller than the data indicated because of the emergence of new players like delivery services, but their argument did not persuade the regulator.
Sainsbury's Chief Executive Mike Coupe, the architect of the deal, was critical of the CMA's analysis.
"The specific reason for wanting to merge was to lower prices for customers," he said.
"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 £1 billion out of customers' pockets."
Coupe said he was confident in Sainsbury's strategy despite the deal's prohibition.