Sainsbury's

According to the FT, Sainsbury and Morrisons held merger talks between November 2025 and February 2026, before Sainsbury decided to walk away. There are no active discussions at present, although talks could potentially restart. A combination would create a sizeable competitor to Tesco, with a c.24.5% market share versus c.28.5% for Tesco.

Greater scale offers obvious benefits, including purchasing, logistics and overhead synergies. But we think Morrisons may have offered Sainsbury something more. Its vertically integrated model, including significant in-house food manufacturing, could fit well with Sainsbury’s growing focus on fresh food, quality and private label. Greater control over sourcing and production could also become increasingly valuable as competition in UK grocery intensifies.

The timing may also have been important. Morrisons’ trading has improved considerably in recent quarters, with LFL sales and volumes growing, profits recovering and debt coming down. The picture was much less encouraging 3-4 quarters ago. Sainsbury may therefore have seen an opportunity to buy an improving business before the recovery was fully reflected in its valuation, while also having scope to extract synergies and drive further improvements.

The main obstacle would clearly be regulation. Sainsbury’s proposed acquisition of Asda was blocked by the CMA in 2019, and a Sainsbury-Morrisons deal would face significant scrutiny, particularly with food prices still politically sensitive.

For now, we see slim chances of such a large deal, but the talks suggest that Sainsbury may be more open to M&A than previously thought.

Expert Opinion:
In food retail, size matters, and such deals are not uncommon and would enable them to offer improved purchasing power to Tesco or hard discounters. But LFL sales and organic growth remain the key lever to improve profitability. We still like food retail, which is among the most resilient in a less flamboyant consumption environment. Carrefour remains my favorite stock because of its low valuation and the potential improvement we could see in Brazil as well as in France.