Sainsbury’s shares have dived 15% after the UK’s competition watchdog cast doubt on its plan to buy Asda.
Customers could see higher prices and less choice if the two grocers combined, the Competition and Markets Authority (CMA) said.
It said it could block the deal or force the sale of a large number of stores or even one of the brand names.
However, it also said it was “likely to be difficult” for the chains to “address the concerns”.
Sainsbury’s boss said the findings were “outrageous”.
In its provisional report on the proposed merger, the CMA also said the merger could lead to a “poorer shopping experience”.
Stuart McIntosh, chair of the CMA’s independent inquiry group, said it had found “very significant competition concerns in a number of areas – they are to do with grocery shopping in supermarkets, grocery shopping online and the companies’ petrol stations”.
“However, if one recognises that the competition concerns are quite broadly based… putting together a package of measures which addresses those concerns is likely to be complex and quite challenging,” he said.
But Sainsbury’s chief executive Mike Coupe described the CMA’s analysis as “fundamentally flawed” and said the firm would be making “very strong representations” to it about its “inaccuracy and lack of objectivity”.
“They have fundamentally moved the goalposts, changed the shape of the ball and chosen a different playing field,” he told the BBC.
“This is totally outrageous.”