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The merger of Sainsbury’s and Asda could damage supermarket competition in 463 areas, the competition watchdog has warned. Its initial findings raise the possibility that the grocery chains may have to sell hundreds of stores.

The Competition and Markets Authority said there could be be a “substantial lessening of competition” if they were “insufficiently constrained”.

Sainsbury’s and Asda said customers would be the merger’s “big winners”. The CMA said: “At a local level, the parties’ stores overlap in several hundred local areas across the UK.

The findings were contained in the CMA’s phase one investigation into the £12bn merger, which took into account local competition from other rival supermarkets including Tesco and Morrisons, but not discounters Aldi and Lidl.

Last week the CMA launched the second phase of its investigation. Sainsbury’s and Asda have called on it to also include Aldi and Lidl in its calculations of risk to competition.

“The grocery market has changed significantly in the last decade and is more competitive than ever, with the rise of discount formats, online grocery and food delivery businesses,” Sainsbury’s and Asda said in a statement.

“We look forward to working with the CMA on the Phase 2 inquiry, where we expect it to conduct a full review of the market and take these changed market dynamics into consideration.”

The deal would create chain with revenues of £51bn a network of 2,800 Sainsbury’s, Asda and Argos stores.

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