Sainsbury’s and Asda agree merger deal

Sainsbury's and Asda are set to become a combined business, after the latter’s parent company Walmart agreed a deal.

The combination will result in Walmart holding 42 per cent of the issued share capital and receiving £2.97 billion of cash, valuing Asda at approximately £7.3 billion on a debt-free, cash-free and pension-free basis. At the time of completion, Walmart will not hold more than 29.9 per cent of the total voting rights in the combined business.

The deal will create one of the UK's leading grocery, general merchandise and clothing retail groups, with combined revenues of circa £51 billion for 2017. Crucially, it will maintain both the Sainsbury's and Asda brands, but combine the network of more than 2,800 Sainsbury's, Asda and Argos stores, to create more store formats and channels.

A statement noted the combination should also lead to lower prices by circa 10 per cent on many of the products customers buy regularly, backed by net earnings synergies across the enlarged group of at least £500 million.

There are no planned Sainsbury's or Asda store closures as a result of the combination, it added.

The combined business will be chaired by the Sainsbury's chairman David Tyler and led by the Sainsbury's chief executive Mike Coupe. Asda will continue to be run from Leeds with its own chief executive Roger Burnley, who will join the group operating board.

Judith McKenna, president and chief executive of Walmart International, said the combination will create a dynamic new retail player better positioned for even more success in a fast-changing and competitive UK market. “It will unlock value for both customers and shareholders, but, at the same time, it's the colleagues at Asda who make the difference, and this merger will provide them with broader opportunities within the retail group.”

Sainsbury’s full-year report - also published today - showed an underlying profit before tax up 1.4 per cent year-on-year to £589 million, driven by a second-half profit increase of 11 per cent.

However, on a statutory basis, profit before tax fell year-on-year from £503 million to £409 million. Total group sales increased nine per cent year-on-year to £31.73 billion, but underlying basic earnings per share were down 6.4 per year-on-year to 20.4 pence per share.

Catherine Shuttleworth, chief executive at retail marketing agency Savvy, commented that consolidation has been long expected in 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,” she said. “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?”

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