Confidence at Sainsbury’s that it can ride out the Competition and Markets Authority probe into its £14.1billion merger with Asda is overdone.
Claims that the grocery market has changed dramatically as a result of the arrival of the German no-frills discounters Lidl and Aldi and ready-meal services, such as Just Eat, do not stand up to scrutiny.
Tesco (before its Booker deal) showed it can push up sales and maintain a dominant market share, irrespective of newcomers.
The biggest and most potent obstacle is not the overlapping store fronts in certain locations, but that there will be a duopoly of Sainsbury’s-Asda, with 60pc of the market.
Confidence at Sainsbury that it can ride out the Competition & Markets Authority (CMA) probe into its £14.1bn merger with Asda is overdone
Whatever the number of challengers snapping at the heels of Sainsbury’s-Asda, a deal cannot be anything but anti-competitive and against consumer interest.
The idea that, magically, the biggest suppliers will cave in to pressure and allow a permanent prices drop for customers is fantasy.
Asda, as an offshoot of Walmart, has more bargaining power than most, and supplier margins have been scraped clean.
Even if all the above can be executed, the management effort in producing cost synergies – anything from £350million to £500million – looks titanic.
Integrating IT systems, warehousing and logistics is going to be a stretch.
You don’t have to go back to previous mergers (Morrisons-Safeway and Co-operative-Somerfield) to understand this.
Both Marks & Spencer and Sainsbury’s have struggled over the years with modernising warehouses and distribution.
In the pharma sector, Glaxo spent years adjusting to the Smithkline merger.
Some of BP’s problems in the US, notably the fatal explosion at Texas City in 2005, can be put down to poor integration after the Aramco and Atlantic Richfield takeovers.
Never underestimate the capacity of big deals to disrupt shareholder value and staff loyalty.
As the last large building society standing, Joe Garner argues that Nationwide should not be judged on profits.
Just as well, since they fell in the past year. At any financial group, earnings are important in keeping capital replenished.
Ignoring the bottom line, there are encouraging signs from Nationwide. As big banks close branches, chief executive Garner views the High Street as a plus, and it has done well in recruiting current account customers, with 816,000 switching, of which four out ten have come through branches.
The best way to judge a building society is through mortgage lending. Nationwide acknowledges it faces stiff competition, particularly from Royal Bank of Scotland and challenger banks, although TSB is unlikely to be worrying the scorer after its IT systems catastrophe.
Net lending at Nationwide took a hit in the past year as the group scaled back on buy-to-let. It marginally increased lending to first-time buyers – the priority for the Government and for a lender which boasts it has social purpose in its DNA.
One of those purposes in recent times has been as a backstop for overstretched mutuals, with Manchester Building Society currently a likely candidate for absorption.
In an era of low interest rates, Nationwide says that it rewards most members with a deposit rate 50 per cent higher than the market over the past year.
We trust it doesn’t take long-term, less-active savers for granted, as is the case in much of the financial sector.
With the changing shape of work – the ‘gig’ economy, self-employment and the like – Nationwide has set its sights on capturing a bit of this market, using RBS’s challenger funds.
That sounds more realistic than an attempt to prise away small and medium-sized businesses from rivals.
The best way Garner can demonstrate that members are always first is by restraining his pay, which hit a bumper £3.4million last year. That should not be part of the DNA.
The sound of the crash of EMI after the top of the market takeover by Guy Hands and Terra Firma in 2007 still lingers.
The decimation of Britain’s premier musical production company, once home to the Beatles, still hurts.
A decade on, Japan’s Sony is paying £1.7billion to rescue EMI Music Publishing with its 2m songs – spanning Queen to James Blunt – from a motley group of investors, including Michael Jackson’s estate.
How sad that creative Britain lacks a music champion.