LONDON: Sainsbury’s has agreed to buy Walmart’s Asda for about £7.3 billion ($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, 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 per cent 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 ($4.1 billion) in cash and a 42 per cent stake in the combined business’ equity, valuing Asda at about £7.3 billion.
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 per cent of stores.
But if they do not include discounters, disposals might have to reach 15 per cent of stores, which could undermine the deal. — Reuters
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