Sainsbury’s confirms Asda merger

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Maura Maxwell

BY MAURA MAXWELL

@maurafruitnet

Sainsbury’s confirms Asda merger

Sainsbury’s shares jump 20 per cent but deal raises major concerns among suppliers

Sainsbury’s confirms Asda merger

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Sainsbury’s has confirmed it is in advanced talks to merge with Walmart-owned Asda, creating the UK’s biggest supermarket group worth up to £15bn.

The fusion of the UK’s second and third largest supermarkets would result in a group with 2,800 stores and combined revenues of £51bn, leapfrogging Tesco in terms of market share.

The deal raises significant competition concerns and will face close scrutiny from competition regulators.

Both the Sainsbury’s and Asda brands will be maintained under the terms of the deal, which values Asda at £7.3bn on a debt-free, cash-free, and pension-free basis. Walmart will hold 42 per cent of the share capital of the combined business and will receive £2.98bn in cash.

Sainsbury’s chairman David Tyler will chair the new group and it will be led by Sainsbury’s chief executive Mike Coupe and chief financial officer Kevin O’Byrne. Asda will continue to be run from Leeds with its own chief executive.

Confirming the deal on Monday, Coupe dismissed fears that it would lead to job cuts and higher prices, and insisted that the companies planned to lower prices on many everyday products by as much as 10 per cent.

The deal is expected to deliver cost savings of around £500m per year from improved buying power and operational cost efficiencies.

Sainsbury’s said the tie-up would create “a dynamic new player in UK retail” and would result in a more competitive and more resilient business that will be better able to “invest in price, quality, range and the technology to create more flexible ways for customers to shop”.

As well as being better able to fend off competition from discounters Aldi and Lidl, the new group will afford more protection against a future onslaught by Amazon.

However, it has raised fears that the new group will force suppliers to drive down prices. Small and medium-sized suppliers in particular face the threat of rationalisation.

Sainsbury’s share jumped by 20 per cent at the start of trading on Monday, reaching their highest level since 2014.

 

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