By Sangameswaran S
(Reuters) - Britain's competition regulator is starting a formal investigation into the proposed 7.3 billion pound deal to combine supermarket chains Sainsbury's <SBRY.L> and Walmart's <WMT.N> Asda.
The move by Britain's second-largest supermarket, for third-placed Asda, would see the merged company overtake Tesco <TSCO.L> as Britain's biggest supermarket group and be better placed to fend off German rivals like Aldi and Lidl and online giants such as Amazon <AMZN.O>.
The Competition and Markets Authority (CMA) said it will begin the first phase of a detailed assessment into how the deal could affect British shoppers in the rapidly changing 190 billion pound a year food and grocery market.
The CMA's remit is to ascertain whether merger situations could result in a substantial lessening of competition. It is independent of government when making decisions on mergers.
The investigation will look at whether the deal could lead to less choice, higher prices and lower quality across products sold by both companies, the regulator said.
CMA had invited all interested parties to submit their views on the deal in May, giving them until June 4 to raise any concerns.
Sainsbury's and Asda want the CMA to fast track to a "phase 2" examination so that the deal can be completed in the second half of 2019. The CMA said it expects to accept the fast-track request unless it receives any valid objections.
The regulator will also be looking at whether the merged company could use its increased buying power to squeeze suppliers and whether this could affect consumers. The combined group is seeking savings of at least 500 million pounds, 350 million pounds of which would come from savings from suppliers.
Last year's surprise decision by the CMA to unconditionally clear Tesco's 4 billion pounds purchase of wholesaler Booker has encouraged Sainsbury's and Asda to believe their deal will be approved.
In June, Sainsbury's chief executive Mike Coupe said that Britain's competition regulator was likely to insist on store disposals to clear the deal, which is the biggest deal in the sector for 15 years.
Competition lawyers have said Sainsbury's and Asda will face an uphill battle to get the bid passed by the CMA without having to sell off so many stores that it removes the rationale for the deal.
Asda said on Thursday it would work closely with the CMA throughout the process while Sainsbury's said the planned deal would benefit consumers and the wider UK economy.
Shares of Sainsbury's slipped 0.7 percent at 1120 GMT.
(Reporting by Sangameswaran S and Arathy S Nair in Bengaluru; Editing by Edmund Blair and Elaine Hardcastle)