Sainsbury’s in $10 bln swoop on Asda to create top UK supermarket
LONDON - Reuters
Sainsbury’s has agreed to buy Walmart’s Asda for about 7.3 billion pounds ($10 billion) to create Britain’s biggest supermarket group by market share, overtaking long-standing industry leader Tesco.
Bringing together Britain’s second- and third-largest supermarket groups could generate the savings and buying power to help them better compete with fast-growing German discounters and growth at Tesco after its purchase of wholesaler Booker.
The cash and shares deal could also provide a potential exit route for Walmart, as Asda, which it bought in 1999 for 6.7 billion pounds, has been struggling to grow over the last five years as discounters Aldi and Lidl attract its price-conscious customers.
Sainsbury’s shares jumped as much as 21 percent to 327.1 pence in early Monday trading, their highest since July 2014, while shares in rivals Tesco and No. 4 Morrisons fell.
Walmart will receive 3 billion pounds ($4.1 billion) in cash and a 42 percent stake in the combined business’ equity, valuing Asda at about 7.3 billion pounds.
Sainsbury’s CEO Mike Coupe will retain that position in the merged company, which will keep the Sainsbury’s and Asda brands.
Analysts said the deal was a bet that recent changes in the retail industry - including the rise in online shopping, hard discounters and Tesco’s purchase of Booker - would ease any opposition from competition regulators.
Bernstein’s Bruno Monteyne said that if regulators included discounters - which sell a much smaller range of products - in their assessment of major competitors for the new group, it might only have to sell about 8 percent of stores.
But if they do not include discounters, disposals might have to reach 15 percent of stores, which could undermine the deal.
Speaking to the BBC, Sainsbury’s Coupe said divestments were possible, but there were no plans to close shops and so customers would be unaffected.
“Even if we have to divest stores they will be sold as trading entities,” he told BBC radio.
Together Sainsbury’s and Asda have 2,800 stores.
