'We're in the Money' were the lyrics inadvertently Sainsbury’s exuberant boss Mike Coupe, following the announcement he would seek a merger with Asda.
However, the supermarket chain will no longer enjoy the financial backing of Citywire AA-rated Leigh Himsworth's £122 million Fidelity UK Opportunities fund, after he sold his ‘significant’ position in the firm.
At face value, he said the push to amalgamate Sainsbury's with its Walmart-owned rival makes 'compelling reading', with £500 million in potential efficiencies, technology sharing and double digit earnings accretion allowing price cuts of 10% on 'regularly purchased' products.
However, he expressed concern about the risks of the sheer size of the deal. 'We are looking at the number two in the market buying the number three,' he pointed out.
This would grant the resulting behemoth 'a number one market position with a market share of 31.4%, clearly giving the CMA [Competition and Markets Authority] an issue.
'In theory, the issues to be determined are whether such a step would disadvantage the customer and stifle investment?
'The part of the statement referring to 10% price cuts on regularly purchased products, is clearly designed to address the first point as the comment, and I paraphrase, "Walmart... to share knowledge and technology developments" is moraimed at the latter.'
That, though, may not be enough, with factors such as 'the position of the employees, (over 300,000 of them), the pension trustees, and the suppliers' all weighing on the eventual outcome.
Himsworth (pictured) noted that consolidation is one way the big four food retail giants of Tesco, Sainsbury’s, Asda, and Morrison's are moving to cope with rising pressure from smaller competitors such as Waitrose and new market entrants like Amazon.
While he said he appreciates the potential gains from rationalisation, he sees the merger itself preoccupying the companies’ management and taking at least another year to pull off.
He added: 'winning in food retailing is not just about buying benefits, it is about clear market positioning and execution.
'The complexity of this deal may mean a lack of focus on the day job for senior management, and could benefit the competitors in the short term, as could any store disposals.’
That said, he’s not counting out buying back into Sainsbury’s when the picture’s clearer, and is looking out for 'perhaps a better re-entry point, perhaps buy-one-get-one-free!'
The Fidelity UK Opportunities fund returned 39.2% in the three years to the end of April compared to a sector average of 21.3%.