To try to rescue the transaction, Sainsbury had pledged 1 billion pounds ($1.3 billion) in price cuts and offered to sell between 125 and 150 stores.

(Bloomberg)—Sainsbury’s, No. 4 in the Internet Retailer Europe 500, and Walmart Inc.’s Asda, No. 10, are preparing to concede defeat in their proposed 7.3 billion-pound ($9.4 billion) transaction to create the biggest U.K. supermarket owner, according to people familiar with the matter.

The companies are unlikely to appeal against an expected rejection by U.K. competition regulators of Sainsbury’s takeover of Asda, said the people, who asked not to be identified because the deliberations are confidential. While a legal challenge cannot be ruled out, the retailers are ready to move on instead of letting the case drag out through courts, they said.

One of Britain’s largest retail takeovers has looked close to collapse since February, when the Competition and Markets Authority said in a provisional report that even with substantial store sales, the merger would likely mean higher prices and less choice for shoppers. The regulator is set to publish its final report on Thursday.

To try to rescue the transaction, Sainsbury had pledged 1 billion pounds ($1.3 billion) in price cuts and offered to sell between 125 and 150 stores. But the regulator said in the provisional finding that the merger would hurt competition in 629 local areas where both companies operate.

A representative for Sainsbury declined to comment, while a spokesman for Walmart didn’t immediately have a comment.

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As the companies await a final decision, Sainsbury is facing mounting bills, a dwindling market share and a falling stock price. It has lost the No. 2 position among U.K. supermarkets to Asda. Its market share has fallen by 0.6 percentage points in the last 12 months, to 15.3%, as German discounters Aldi and Lidl (No. 82) have gained ground and larger rival Tesco Plc (No. 5) has used its scale to push down prices.

As it focused on the Asda deal, Sainsbury has trimmed other areas that might have helped it shore up its market share. The grocer last year cut advertising spending by 24%, reducing its budget for television commercials by more than half, according to data from Nielsen.

Sainsbury’s holiday sales fell more than analysts expected as the company cited consumer caution amid the political stalemate over Brexit. It will report its full-year earnings next Wednesday, when the full cost of the deal will likely be revealed. As of September, Sainsbury’s had spent 17 million pounds ($21.9 million) on legal and banking fees, according to its half-year results.

“Sainsbury’s could be in quite considerable trouble if the CMA does not change its mind,” Clive Black, an analyst at Shore Capital, said by phone. “Its business is not trading well, and it leads me to believe that there could be the potential for an earnings downgrade or even an official profit warning in the future.”

Sainsbury shares have taken a pounding this year and haven’t recovered from their biggest fall in a decade when the CMA published its provisional findings. Since the merger was announced, the grocer has fallen 27%, wiping nearly 2 billion pounds ($2.9 billion) off its market value.

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The shares could fall further if regulators stick to their guns and the grocers abandon the deal, analysts at JPMorgan said in a note. Sainsbury’s earnings may also disappoint investors, they said.

Despite falling behind Asda in overall market share, the company still sells more groceries, but the Kantar figures do not account for Sainsbury’s Argos household-goods business.

Sainsbury’s stores and staff have already felt the impact of cuts. Last year, Sainsbury pushed through a contentious new pay deal for thousands of employees. Amid heavy political criticism, CEO Mike Coupe said that the U.K. sector was undergoing a structural shift—including the rise of discounters and online shopping—that necessitated changes in the way it operates.

As part of the new pay plan, Sainsbury’s also removed thousands of management roles in its supermarkets and has since faced criticism for declining store standards, including poor product availability. In November, when the grocer revealed a 40% fall in its first-half profit, Coupe blamed disruptions from implementing the compensation system as well as a hot summer for shortages on shelves.

“Given the state of Sainsbury’s stores at the moment, we will need to see some investment going into the business,” and that could cut profit margins, Black said.

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