Sainsbury shares leap 21% on £7 billion Asda deal

Joining together the UK’s second and third-biggest supermarket chains could face major regulatory hurdles

Sainsbury’s and Asda, the UK arm of Walmart, confirmed on Monday they are to merge to create Britain’s biggest supermarket group by market share, surpassing current leader Tesco. Photograph:  Chris J Ratcliffe/Getty Images

Sainsbury’s and Asda, the UK arm of Walmart, confirmed on Monday they are to merge to create Britain’s biggest supermarket group by market share, surpassing current leader Tesco. Photograph: Chris J Ratcliffe/Getty Images

 

Sainsbury’s and Asda, the UK arm of Walmart, confirmed on Monday they had agreed a £13.3 billion pounds merger to create Britain’s biggest supermarket group by market share, surpassing current leader Tesco.

The combination will result in Walmart, the world’s biggest retailer, holding 42 per cent of the combined business’ equity and receiving £2.975 billion , valuing Asda at about £7.3 billion. Sainsbury’s had an equity value of £6 billion at Friday’s closing prices.

The enlarged group would be able to better compete against German discounters Aldi and Lidl, both of which have been rapidly growing market share in Britain. The deal would generate synergies of at least £500 million, Sainsbury’s said, and enable prices to be lowered by about 10 per cent on many products. Joining together the UK’s second and third-biggest supermarket chains with combined revenues of £51 billion will reduce costs and increase buying power but could face major regulatory hurdles. The deal would see both the Sainsbury’s and the Asda brands maintained, combining a network of over 2,800 stores.

There are no planned Sainsbury’s or Asda store closures as a result of the combination.

The combined business will be chaired by Sainsbury’s chairman David Tyler and led by Sainsbury’s chief executive Mike Coupe. Britain’s big four grocers, including No. 4 player Morrisons , are all losing share to Aldi and Lidl and are also having to deal with growing demand for internet grocery shopping and the relentless march of Amazon.

Sainsbury’s also reported its full-year results on Monday, which showed underlying pretax profit grew 1.4 per cent in the 12 months to March 10 to £589 million, helped by the delivery of synergies from its 2016 takeover of Argos, efficiency savings and improving food margin trends. – Reuters