City investment banks, lawyers and other professional services firms could share more than £120m in fees from the merger of Sainsbury’s and Asda, with the two supermarket chains set to face over 12 months of complex negotiations to finalise their deal.

Morgan Stanley and UBS, Sainsbury’s advisers that also worked on the acquisition of Home Retail Group, have been drafted in to work on the merger, while Rothschild is said to be working for Asda.

Investment banking fees are usually estimated to be 1% of the value of the deal, meaning that the £12bn merger may cost at least £120m in fees.

However, with a Competition and Markets Authority investigation into the merger forecast to take at least 18 months, the two sides could accrue additional legal fees measured in the tens of millions of pounds as they attempt to persuade officials to authorise the deal.

Traditionally, Clifford Chance has been used by Sainsbury’s and, like Morgan Stanley and UBS, was at the company’s side during its acquisition of Home Retail Group. The £3.9bn takeover of Home Retail Group cost Sainsbury’s approximately £30m in professional services fees.

Any estimate of fees will depend on how the latest deal is structured, because if Sainsbury’s or Asda were to require any Bank financing, whether that be short-term bridging loans or other forms of debt funding, it could potentially add millions more to the total.

In addition to straight advisory fees, banks can also earn millions of pounds by providing ‘capital market solutions’, such as accommodating the use of currency hedging contracts to protect against movements in foreign exchange markets, which would add further costs to the final bill.

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