Published: Tue, May 01, 2018
Money | By Wilma Wheeler

Sainsbury's, Asda merger to form largest United Kingdom grocer

Sainsbury's, Asda merger to form largest United Kingdom grocer

With more than 8m customers regularly buying its Tu clothing, Sainsbury's is the sixth largest clothing retailer by volume in the UK.

United States retail giant Walmart on Monday agreed to sell its British unit, Asda, to local rival Sainsbury's in a 7.3 billion pound (8.3 billion $10.1 billion) deal.

He notes that the cornerstone of why the deal is happening is to drive synergies between the two businesses.

Sainsbury's shares jumped as much as 21 percent on the London Stock Exchange to 327.1 pence, their highest since July 2014 and were on course for their biggest-ever daily gain, while shares in rivals Tesco and Morrisons fell.

"The nature of the United Kingdom market is incredibly competitive and customers have a huge amount of choice and they exercise that choice".

The government informed parliament that Business Secretary Greg Clark had held talks with Sainsbury's, Asda and unions over preserving jobs.

Bernstein senior analyst Bruno Monteyne said if regulators included discounters - which sell a much smaller range of products - in their assessment of major competitors for the new group, it might have to sell only about 8 per cent of stores. In addition, any overlap between the brands would undermine their respective propositions and result in the cannibalisation of sales.

Further, Walmart would receive about £2.975 billion (US $4.095 billion) in cash, subject to customary closing adjustments, valuing Asda at around £7.3 billion (US $10.05 billion) on a debt-, cash- and pension-free basis.

"This is a transformational opportunity to create a new force in United Kingdom retail, which will be more competitive and give customers more of what they want", said Sainsbury's chief executive Mike Coupe.

This sale includes nearly £3 billion, or $4.14 billion United States dollars, in cash, and 42 percent stake in the combined company, the Wall Street Journal goes on to explain.

Walmart will be a long-term shareholder and partner and will leverage its global scale and investment to support the combined business. Asda will continue to be run from Leeds with its own CEO, Roger Burnley, who will join the group operating board of the combined business. Indeed it was only two years ago Sainsbury took over Home Retail Group to boost its prospects, by integrating Argos within its store estate.

"It is unfortunate I was caught singing, as I say I was relaxing at the time - this is an incredibly stressful day and maybe it was an unfortunate choice of song".

"We think it is a great deal all around".

Instead, he said cost savings of at least £500m would allow the new group, which will account for almost £1 in every three £3 spent on groceries, to reduce prices by a tenth on many "everyday items". Group sales, including Value-Added Tax, were up 9% to GBP31.7bn from GBP29.1bn a year earlier, and like-for-like sales increased 1.3%. If Sainsbury's can demonstrate the merger will create lower prices for customers, that will help too.

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