Sainsbury's explored a Morrisons merger that would still have trailed Tesco

The reporting is firmest on Morrisons' condition. Clayton Dubilier & Rice bought the grocer, once one of the big four, in 2021 ^[4]. The deal loaded it with more than £7bn of debt, and it has since struggled to grow as fast as its rivals ^[5]. Lidl overtook it in market share this year ^[17]. The merger figures put Morrisons at roughly 8.4% of the market: the combined 23.6% ^[6] less Sainsbury's own 15.2% ^[8], assuming both numbers cover the same period ^[14]. On the day the talks were reported, Lidl GB said revenue rose 10% to more than £13bn and pre-tax profit rose 30% to £245.5m in the year to February ^[16].

The talks themselves prove less. According to the Financial Times and Sky, the two companies held exploratory negotiations over a multibillion-pound deal ^[2]. The reports do not say which side made the approach or why the discussions stopped, and both companies declined to comment ^[13]. The owner's stance is clearer. I think a private-equity owner carrying more than £7bn of debt ^[5] has a strong reason to want a trade buyer. Sky reported that CD&R is open to combining Morrisons with another major supermarket, and that Asda, majority owned by TDR Capital, could also be drawn into talks ^[10].

This year Sainsbury's has narrowed toward food. In the summer it agreed to sell Argos for £120m to concentrate on its core grocery business, a decade after paying more than £1bn for the chain ^[12]. Its shares are down 3% this year while Tesco's are up 6% ^[11]. A Morrisons deal would fit that narrowing. It would still leave the combined group at 23.6% against Tesco's 27.8%, according to Worldpanel by Numerator ^[6]. The gap would be 4.2 points ^[15].

A skeptic would say the regulator answered this in 2019, when the CMA blocked the £7bn Asda-Sainsbury's merger on the grounds that it would cut competition and raise prices ^[7]. The reporting points to a narrower answer. The CMA would almost certainly have reviewed a Sainsbury's-Morrisons deal and could have required Sainsbury's to sell stores to win approval ^[3]. On that reading the question is how many stores, and where. Lidl's move past Morrisons ^[17] is the first exhibit I would expect a merging party to offer as proof that the market has changed since 2019. We do not know yet whether the CMA would accept it. Persistent food inflation for millions of households also makes any loss of grocery competition politically sensitive ^[9].

Nothing is forced this week; the talks are believed to be over ^[1]. The decision for Sainsbury's board runs on a slower clock. If it stays out while CD&R is open to offers ^[10], the next big-four combination it meets may be a rival's, with Sainsbury's arguing as a competitor in the review. If it goes back in, the first figure it has to price is the store list the CMA could demand ^[3].