Sainsbury’s held merger talks with rival Morrisons this year to discuss a multibillion-pound deal that would have been the biggest shake-up for UK supermarkets in decades, according to reports.

The two companies held exploratory negotiations, according to the Financial Times and Sky. It is believed they are no longer in live discussions.

Morrisons, which was once one of the big four UK grocers alongside Sainsbury’s, Tesco and Asda, was bought by the US private equity firm Clayton Dubilier & Rice in 2021.

The deal loaded it with more than £7bn in debt on its balance sheet, and it has since struggled to grow as fast as its rivals. The German discounter Lidl overtook it in market share this year.

A merger between Sainsbury’s and Morrisons would have created a business with a 23.6% market share, putting it still some way behind Britain’s biggest retailer, Tesco, which has 27.8% of the market, according to analysts at Worldpanel by Numerator.

The last attempt to merge two of the big four supermarkets came in 2019, when Asda and Sainsbury’s almost joined forces. That £7bn deal was blocked by the Competition and Markets Authority on the basis that it would result in a loss of competition and higher prices for customers.

The CMA would have almost certainly reviewed any merger between Sainsbury’s and Morrisons, and could have required the former to sell some of its stores to gain approval for any deal.

Reducing competition in the grocery sector could also be politically sensitive, given that millions of households have grappled with persistent food inflation in recent years.

Clayton Dubilier & Rice, however, is open to a tie-up between Morrisons and another major supermarket, according to Sky. It reported that Asda, which is majority owned by the private equity firm TDR Capital, could also be drawn into deal talks.

Shares in Sainsbury’s, which is listed on the London Stock Exchange, were flat on Monday afternoon. The stock has fallen by 3% so far this year, compared with a 6% rise for its FTSE 100 rival Tesco.

Sainsbury’s, which employs about 140,000 people, is the second biggest grocer in the UK by market share at 15.2%.

It agreed to sell Argos for £120m in the summer to allow it to concentrate on its core food business, a decade after buying the retail chain for more than £1bn.

News of supermarket takeover talks came as Lidl GB reported a 10% jump in its annual revenue to more than £13bn on Monday.

The company said pre-tax profits at its British arm rose by 30% to £245.5m in the year that ended in February as shoppers sought out cheaper fresh meat, fruit and vegetables, as well as its Deluxe upmarket food range.

Sainsbury’s and Morrisons declined to comment.