UK supermarket giant Sainsbury’s has confirmed that it has agreed to terms for a £12 (€13.6) billion merger with Walmart-owned Asda, another leading UK retailer.
The merger, between the UK’s number two and three supermarkets, was agreed upon by the two companies but awaits approval from the Competition and Markets Authority (CMA) in order to be finalised.
Competitive Markets
The two retailers said that the combined group would boast revenues of £51 (€57.9) billion and will have a network of up to 2,800 Sainsbury’s, Asda and Argos stores.
Sainsbury’s has announced that the Combination will generate at least £500 (€567) million in cost savings, but not as a result of cutting staff or businesses. Sainsbury’s reported that there are no planned closures as a result of the merger.
The Combination expects to lower prices by 10% on products that customers purchase regularly.
Walmart will hold 42% of the share capital of the combined business and will receive £2.97 (€3.37) billion in cash, valuing Asda at £7.3 (€8.3) billion. Sainsbury's is valued at around £5.9 (€6.7) billion.
Sainsbury’s said that the Combined Business will be chaired by the Sainsbury's Chairman and led by the Sainsbury's CEO and CFO. Asda will continue to be run from Leeds with its own CEO, who will join the Group Operating Board of the Combined Business.
Transformational Opportunity
Commenting on the Combination, Mike Coupe, Chief Executive Officer of Sainsbury's, said, “This is a transformational opportunity to create a new force in UK retail, which will be more competitive and give customers more of what they want now and in the future. It will create a business that is more dynamic, more adaptable, more resilient and an even bigger contributor to the UK economy.
“Having worked at Asda before Sainsbury's, I understand the culture and the businesses well and believe they are the best possible fit. This creates a great deal for customers, colleagues, suppliers and shareholders and I am excited about the opportunities ahead and what we can achieve together.”
Roger Burnley, Chief Executive Officer of Asda, said, “The combination of Asda and Sainsbury's into a single retailing group will be great news for Asda customers, allowing us to deliver even lower prices in store and even greater choice. Asda will continue to be Asda, but by coming together with Sainsbury's, supported by Walmart, we can further accelerate our existing strategy and make our offer even more compelling and competitive.”
David Tyler, Chairman of Sainsbury's, added, “The proposal will bring together two of the most experienced and talented management teams in retail at a time when the industry is undergoing rapid change. We welcome Walmart as a significant shareholder and look forward to working closely with them.”
A Necessary Step
Commenting on the deal, Catherine Shuttleworth, CEO of shopper & retail marketing agency Savvy, said that the merger of the two retail giants was necessary for them in order to survive.
She said, “We were always expecting something to happen to consolidate the grocery market - the middle ground has been squeezed the most by the inevitable march and expandability of the discounters, a reinvigorated Tesco with Booker under its wing is less arrogant and more relevant than with support from suppliers and conversion with shoppers - so the potential of Sainsbury's and Asda joining forces creates a new dimension for the UK grocery market.
“Whilst it’s unclear what form this merger may ultimately take it was always necessary to consolidate to survive. Could this be the catalyst for Amazon to make a real move?”
Find out what other top analysts have been saying about the proposed merger at our sister publication, ESM Magazine.
© 2018 Checkout – your source for the latest Irish retail news. Article by Aidan O’Sullivan. Click subscribe to sign up for the Checkout print edition.
