Sainsbury and Asda to merge, reacting to market competition
- Author: Rita Burton May 01, 2018,
May 01, 2018, 4:22
Indeed, Sainsbury's Chief Executive Mike Coupe and Roger Burnley, the CEO of Asda, have a shared history that will aid with the integration of the two cultures, Walmart International chief Judith McKenna said on Monday.
In 2004, Morrison's was forced by the Office of Fair Trading to divest with 50 stores after it purchased the grocer Safeway amid similar market competition concerns - and that was in a much smaller deal.
Walmart will receive 3 billion pounds in cash and a 42 percent stake in the combined business, valuing Asda at 7.3 billion pounds on a debt-free basis.
Sainsbury's CEO Mike Coupe might've chosen a different song to sing between TV interviews if he wanted to avoid scrutiny. "We think these 75 stores would be the absolute minimum that the CMA will want disposed of".
Patrick O'Brien, UK retail research director at GlobalData, said: "Regulators will be looking to see how many Asda stores are in close proximity to Sainsbury's stores".
Sainsbury's insists that any stores it offloads will be sold as trading entities, but the future of staff at those outlets - which number anywhere from 7,500 to 10,000 - will depend on whether a buyer is found and if the shops stay trading.
Analysts said the deal was a bet that seismic changes in retail would ease any regulatory fears and some speculated that Morrisons and the Co-operative, respectively Britain's No. 4 and No. 6 players, could respond.
Sainsbury's said the deal would deliver a double digit rise in earnings by the second full year post-completion, generate synergies of at least 500 million pounds and enable prices to be lowered by about 10 percent on many products. Sainsbury's is valued at around £5.9bn.More news: Coli cases tied to romaine lettuce
The source described the planned deal - which would consolidate a brutally competitive United Kingdom food market while helping Walmart address its underperforming United Kingdom arm through greater buying power - as a "merger".
Analyst Bruno Monteyne at Bernstein added: "This is a bold gamble".
Shares in Sainsbury's rocketed 20% at the market open as investors interpreted the deal as a boon for the firm.
"This proposed merger represents a unique and bold opportunity, consistent with our strategy of looking for new ways to drive worldwide growth", addedJudith McKenna, president and CEO of Walmart global.
After a two-year lock-up period, Walmart is allowed to reduce its stake in the combined group to 29.9 percent, and after four years could exit completely.
"We believe the Combination offers a unique and exciting opportunity that benefits customers and colleagues", said President and Chief Executive Officer Doug McMillon, according to a press release.
Sainsbury's and Asda have admitted that store disposals could be possible following their £12bn merger, casting doubt over thousands of supermarket jobs.