|
Getting your Trinity Audio player ready...
|
Mike Coupe, the chief executive at UK grocer J Sainsbury, could hardly contain his joy. In April, he was caught on camera before an interview on his just-announced plans to acquire rival Asda humming a showtune, “We’re in the money”. Now, Mr Coupe is likely looking for a more downbeat song to sing.
UK competition authorities on Wednesday all but killed the £7.3bn supermarket deal, making it the second time this month European regulators have moved to prevent big corporations from getting even bigger.
Pushback from antitrust enforcers had been expected. But the scope of the Competition and Markets Authority preliminary ruling is so severe that there is likely no way for Sainsbury’s and Asda to find a way forward. Shareholders responded by wiping out nearly a sixth of Sainsbury’s market value.
The move comes fast on the heels of a European Commission decision to block a planned “Railbus” combination of Siemens and Alstom, the German and French train manufacturers, and raises new questions about whether big mergers are becoming anathema in Europe.
The twin crackdowns stand in sharp contrast to the US, where big business has had its way with the Trump administration. Tax breaks, regulatory rollbacks and a decline in antitrust enforcement have been celebrated by corporate interests in Washington.
If Europe and the US are turning to Venus and Mars on merger approvals, the next test will be the combination of American mobile telecom rivals T-Mobile and Sprint. In telecoms, Europe has consistently rejected similar so-called four-to-three consolidations in recent years. The Trump administration is unlikely to follow suit.
While the grocery and industrial sectors share little in common, there are some takeaways from Europe’s resistance.
Both deals would have created more powerful standalone European companies. A combined “Sainsda” would be able to fully challenge market leader Tesco in size and scale. Siemens and Alstom were aiming to become the dominant train and signalling companies in Europe as China threatens to intrude into the market.
Consolidation deals are always cast by advocates as a means to pass on cost savings to consumers, but the reality is that shareholders are generally the biggest winners. Brussels and London have argued that consumers ultimately incur higher prices from the decline in competition.
Both sets of companies argued that regulators should take a dynamic view of market competition. The emergence of Amazon in e-commerce and delivery coupled with brutal high-street competition from big-box insurgents Aldi and Lidl will only intensify for Sainsbury and Asda. Siemens and Alstom framed the rationale on the need for a European champion to resist future competition by a state subsidised Chinese rival.
And there is precedent on their side. Famously, Brussels cracked down on Microsoft’s dominance in computer operating systems just as the market made Bill Gates’s once-dominant software almost obsolete, thanks to the rise of Web-based services.
Regardless, European regulators have rejected the call to consider the future market structure in favour of the present reality. The CMA said competition would be lessened nationally and locally in everything from online shopping at the petrol pump by a combined Sainsda. At a time when Brexit threatens the UK’s economic health, it’s hard to disagree with a decision that likely would have seen households have to swallow higher prices.
The EU ruled that Siemens and Alstom would be too powerful in train signalling without significant divestments. That pill proved too big for the companies to swallow.
In both cases, Europe is leading the way in forcefully making the case for competition. Whether consumers will be better for it may never be known.
