Eight years ago, Sainsbury’s bold ambitions to merge with a rival began to unravel. On the day the company unveiled its plan to buy Asda, its chief executive at the time, Mike Coupe, was caught on live TV singing “we’re in the money”. After months of wrangling, the proposed £7.3bn deal — which would have created a new market leader — was blocked by competition regulators. This year the UK’s second biggest supermarket chain considered another multibillion-pound combination — this time with private equity-owned Morrisons. The talks collapsed in February after a failure to agree on price, according to people familiar with the matter. The deal under discussion was an ambitious one. It would have redrawn the UK food retail market while stoking many of the competition law concerns that had doomed the Sainsbury’s-Asda deal. The UK’s highly competitive supermarket industry is something of an anomaly. It was also being attempted against a backdrop of persistent rises in the price of everyday groceries and a government under pressure to alleviate a squeeze on the nation’s disposable income. A sale of Morrisons would provide an exit for buyout group Clayton Dubilier & Rice, which paid £10bn for the Bradford-based retailer in 2021, including debt. Sainsbury’s has a market capitalisation of just over £7bn and carries £5.7bn of net debt, including lease liabilities. Though the talks are no longer active, they signal that dealmaking is back on the agenda for UK supermarket executives. Negotiations — spearheaded by Sainsbury’s chief Simon Roberts and Morrisons’ chair Sir Terry Leahy — lasted from November 2025 to February, becoming serious around Christmas, according to people close to the process. CEO Simon Roberts’ strategy has been to refocus on food. Roberts had meanwhile been making headway with separate talks to offload Argos to a trio of retail veterans including two former Morrisons executives, Trevor Strain and Richard Pennycook. Selling the general merchandise retailer, which Sainsbury’s bought a decade ago, was consistent with Roberts’ strategy of refocusing on food. But even as Sainsbury’s sought to sell unwanted assets, a move to acquire a major grocery rival still appealed. Putting together two of the UK’s biggest supermarket chains would boost buying power with suppliers. Acquiring Morrisons, which is also one of the UK’s largest fresh food producers, would have further underlined Roberts’ strategy of refocusing on food. Furthermore, it remains an asset-rich business that owns about 80 per cent of the freeholds to its supermarkets. Bernstein analyst Richard Trainor said “a deal makes complete sense”.
Scale really matters and the best way to sustainable returns and winning in the market is to have a market share advantage,” he said, while adding that investors would still be relieved talks had not progressed because of the risk of distraction for Sainsbury’s management. A Sainsbury’s supermarket in London. Putting together two of the UK’s biggest supermarket chains would boost buying power with suppliers. To devise a deal, Sainsbury’s turned to its advisers at Robey Warshaw, now part of Evercore, and tasked a group of lawyers and competition experts to consider which stores may need to be sold to satisfy regulators that a combination would not be harmful to consumers. Before talks hit trouble, the two sides had got comfortable with the idea that a deal would not be thwarted by the Competition and Markets Authority. One reason for that confidence, according to people familiar with the matter, was the change in the UK supermarket landscape since the watchdog blocked the Sainsbury’s-Asda deal in 2019.
Source: Financial Times Companies · Summarized by HeadlinesBriefing