Business

£12bn Sainsbury's-Asda merger 'a retail game-changer' say experts

Sainsbury's has agreed terms for a £12 billion merger with Walmart-owned Asda, setting the stage for one of the most audacious deals in UK retail history
Gary McDonald Business Editor

SAINSBURY'S has confirmed it has agreed terms for a £12 billion merger with Walmart-owned Asda, setting the stage for one of the most audacious deals in British retail history.

The duo - the UK's number two and three supermarkets - said on Monday that the unified group would have combined revenues of £51 billion and boast a network of 2,800 Sainsbury's, Asda and Argos stores.

It will aim to generate £500 million in cost savings but Sainsbury's insisted there are no planned store closures as part of the merger, with both brands to operate side by side.

The combined supermarket expects to lower prices by around 10 per cent on products customers buy regularly.

It will see Asda owner Walmart hold 42 per cent of the new business and receive £2.97 billion in cash, valuing Asda at £7.3 billion.

Sainsbury's is valued at around £5.9 billion.

Sainsbury's chairman David Tyler said: "We believe that the combination of Sainsbury's and Asda will create substantial value for our shareholders and will be excellent news for our customers and our colleagues.

"As one of the largest employers in the country, the combined business will become an even greater contributor to the British economy."

If it goes ahead, the combination will create a high street titan with a bigger share of the market than Tesco.

Latest figures show that Tesco has a 27.6 per cent market share, while Sainsbury's has 15.8 per cent and Asda has 15.6 per cent. Together, they would move ahead of Tesco, with 31.4 per cent of the market.

However, the merger would have to be approved by the Competition and Markets Authority (CMA).

Following the tie-up, the two grocers will continue to have their own chief executives, Sainsbury's under Mike Coupe and Asda under Roger Burnley.

Mr Coupe 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."

Unions have raised fears over the prospects for jobs, although Sainsbury's said that the deal will "offer more opportunities" for over 330,000 colleagues at all levels.

Unite has called for "guarantees on jobs" and demanded sit down meetings with senior bosses at both Sainsbury's and Asda.

Liberal Democrat leader Sir Vince Cable, the former business secretary, said the CMA "must investigate" any deal, with shadow business secretary Rebecca Long-Bailey echoing the call.

Sir Vince said the CMA should force the companies to sell off stores if the merger meant the new giant was dominant in a particular area, telling the watchdog's new chief, Andrew Tyrie, to "get tough with monopolies".

Ms Bailey warned that, in the absence of proper vetting, it would be "British shoppers that suffer from rising prices and British workers that may be fearing for their jobs".

Shares in Sainsbury's rocketed 20 per cent at the market open as investors interpreted the deal as a boon for the firm.

Conversely, shares in Tesco fell 4 per cent and Morrisons stock was down 3 per cent.

Separately, Sainsbury's revealed that its full year pre-tax profit fell 19 per cent to £409 million. Like for like sales grew 1.3 per cent and the group delivered £185 million in cost savings, driven by cost savings linked to its integration of Argos.

Asda, meanwhile, saw its fourth consecutive quarter of positive like-for-like sales growth in the three months to March 31.

In the financial year to December 2017, Asda saw a 2.6 per cent in sales to around £22.2 billion and a return to positive comparable sales for the full year.

However, investments in price dragged down operating profit to £720 million from £845 million.

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