Sainsbury's-Asda challenge regulator over deal probe

By Paul Sandle and James Davey

LONDON (Reuters) - Sainsbury's <SBRY.L> and Asda, the British supermarket groups that want to combine their businesses, will challenge a refusal by the regulator probing their 7.3 billion pound ($9.2 billion) deal to give them longer to respond to the latest evidence.

The move sent shares in Sainsbury's down as much as 5.5 percent as it pointed to growing tension between the two companies and the Competition and Markets Authority (CMA) regulator.

Sainsbury's Chief Executive Mike Coupe had already said last month that the firm would challenge in the courts any unfavourable final ruling by the CMA on the deal if it believed it was not backed up by published evidence.

The deal, agreed in April, between second-ranked Sainsbury's and the British arm of Walmart <WMT.N>, the number three player, could see the combined group vault Tesco <TSCO.L> as market leader.

It is being assessed by the CMA, which has said it will publish preliminary findings in early January, ahead of a final report in March.

Both companies said on Wednesday they will lodge an application with the Competition Appeal Tribunal (CAT) for a judicial review of the CMA's phase two investigation of the deal, which started in September.

Their application requests a review of the CMA probe's timetable and process.

"The current timetable does not give the parties or the CMA sufficient time to provide and consider all the evidence given the unprecedented scale and complexity of the case," Sainsbury's and Asda said.

Sainsbury's and Asda have said they do not believe the CMA will insist on a level of store disposals in locations where they both have shops that would make the deal unpalatable.

WORKING OVER CHRISTMAS

The companies asked the CMA for an extra 11 working days over the Christmas period to respond to a large amount of material recently provided to them. The CMA declined the request.

Sainsbury's and Asda feared that without the extension they would not be able to meaningfully respond to some core issues before the CMA's provisional findings are published.

But the CMA said granting an extension would put its ability to complete the investigation by the required deadline "at very serious risk".

"As with all of our merger reviews, we construct our timetable to ensure that everyone has the chance to have their say, including customers, the companies involved and suppliers," it said.

The CMA said its first priority was assessing if customers would face higher prices or a lower quality of service.

Tesco has said the deal should not be cleared without "extensive remedies", and number four Morrisons <MRW.L> has raised concerns about an "effective duopoly" - Tesco and Sainsbury's-Asda - controlling in excess of 60 percent of the market.

($1 = 0.7960 pounds)

(Editing by Sarah Young and Jason Neely)