Sainsbury’s boss favoured profit over logic in the Asda merger

Mike Coupe has always struck me as among the most sensible of businessfolk.

Whenever I met the Sainsbury’s chief executive he never came across as arrogant. His points were carefully constructed and argued. For years, he was in the background, the foil to the media-friendly Justin King. They made a good pairing.

Coupe, though, proved himself more than capable of stepping up, and succeeding King. The takeover of Argos was a calculating stroke of genius, a swoop by Sainsbury’s in one move on the catalogue and online supplier’s far superior distribution technology. It wasn’t the Argos branches he wanted, per se, but the technical know-how, and he got it.

Which is why when I saw the clip of Coupe singing “We’re in the Money” soon after the proposed £12bn merger with Asda was announced I got the jitters. It did not seem right, did not sit with the Coupe I knew. Yes, he was a rock guitarist in his spare time, and doubtless he liked to let off a riff or two, but this was different. Even the selection of song did not lend itself to a wannabe Eric Clapton.

It’s easy to explain his impromptu behaviour, to dismiss it as a light-hearted moment captured on camera ahead of going live on air for a TV interview. It signified nothing, merely showing how relaxed he was. That, at least, was the official reasoning from Sainsbury’s.

But I, for one, was shocked. It told me where Coupe’s mind lay, that in the middle of taking the world through the reasoning behind his mega-deal, he was thinking about the profits to be gained. I suspected, to use a phrase trotted out increasingly these days, that the Sainsbury’s boss with a comb-over had uncharacteristically drunk the Kool-Aid. He was seeing only pound signs when he should have been looking for warning lights.

What happens in an agreed deal such as that of Sainsbury’s and Asda is that everyone wants it to go ahead. Both sets of management have convinced themselves it makes perfect sense to unite. The advisers are on percentages based on success. With a marriage of this size, it does not take a mathematical genius to work out that the fees hanging on the union being completed are colossal.

Of course there is the Competition and Markets Authority to persuade. But surely, the boffins can see what Coupe and co have seen? Yes, there are bound to be grumbles from competitors, and, naturally, suppliers will kick up a fuss. They always do. For the former, it’s a chance to put some obstacles in the way, to seek concessions. This is their only opportunity to inflict damage. For the latter, they need to make their case, and again, something good will emerge. But, honestly, it won’t amount to much, and certainly not enough to derail the whole venture.

Sainsbury’s employed lawyers at Linklaters, and Asda at Gibson Dunn, to guide them through the CMA process. I’d love to know if they mapped out the worst-case scenario, the one that has actually occurred with the watchdog blocking the alliance, saying it would lead to increased prices in stores, online and at the new group’s petrol stations. For the first time since its creation in 2014, the authority delivered an outright ban.

There was Coupe proclaiming the strategy would provide the oxygen for growing the business, and enhancing value for investors (and senior managers, hence, possibly his ill-advised choice of lyric). But all along the CMA was more concerned about the effect on consumers. Stuart McIntosh, chair of the CMA’s inquiry group, said the merger “would reduce competition in supermarkets and online grocery shopping and at the companies’ petrol stations”. He added: “We think that is likely to lead to higher prices or other changes which would be unwelcome to shoppers, such as longer checkout queues.”

Presumably, the legal eagles did what’s known in the trade as the “red hat” analysis, detailing the perceived threats and risks. Possibly, they dwelt on the legalities of the CMA’s remit and processes. What is now transparent is that either someone did not assess properly the regulator’s priorities, or if they did, they were ignored, or not taken seriously enough.

In a situation where all the players on your team, plus yourself, are willing a positive outcome, nobody wants to be Eeyore and focus on the negatives. They want to please not help with their advice – when helping not pleasing may yield a more realistic likelihood of victory.

Put the law on one side, and concentrate on what mattered to the CMA. Which audience did it care the most about? Certainly, that was not the shareholders in Sainsbury’s and Asda. The CMA is a public organisation, and the consumer must come first. It would be suicide for McIntosh and his team to suppose any differently.

This is why, sadly, Coupe’s song is so symbolic. It’s “We’re in the Money”. The “we”, found the CMA, is not the shopper. The song is from the musical 42nd Street. It also has another name, the “Gold Diggers’ Song”. That should tell you something.