Sainsbury's CEO Mike Coupe (left), Walmart International boss Judith McKenna (centre) and Asda CEO Roger Burnley celebrate the merger.
Two of the UK’s so-called ‘Big Four’ supermarkets, Sainsbury’s and Asda, have agreed to merge.
Asda owner Walmart will receive £2.975 billion in cash in return for a 42% stake in the enlarged business, which Sainsbury’s predicts will be able to lower the price on “products customers buy regularly” by around 10%.
The combined business will have revenue of £51 billion and will account for £1 in every £3 spent on groceries in the UK. That will put it on a level footing with the UK’s largest grocery retailer, Tesco, which also turned over £51 billion in its last financial year.
But according to Kantar Worldpanel, Asda and Sainsbury’s combined share of 31.4% of the UK grocery market will eclipse Tesco’s 27.6%.
The acquisition will need the approval of the Competition and Markets Authority (CMA), which is likely to pay close scrutiny and could suggest Sainsbury’s sell off assets in order to avoid monopolising the grocery market.
It marks the next step in Sainsbury’s growth strategy, having already paid £1.4 billion to acquire Home Retail Group – the owner of homeware and electronics retailer Argos – and brought Argos outlets into its supermarkets to appeal to a growing click-and-collect audience.
What they said
Mike Coupe, chief executive 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.”
Judith McKenna, president and chief executive officer of Walmart International, said: “This proposed merger represents a unique and bold opportunity, consistent with our strategy of looking for new ways to drive international growth. Asda became part of Walmart nearly 20 years ago, and it is a great business and an important part of our portfolio, acting as a source of best practices, new ideas and talent for Walmart businesses around the world. We believe this 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. We are very much looking forward to working closely with Sainsbury’s to deliver the benefits of the combined business.”
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. From my six years with Asda and ten years with Sainsbury’s, I know first hand that both organisations are fortunate to employ some of the most talented and customer-focused colleagues in this market and I am excited by the opportunity of the two coming together.”
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. 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.”
Following the deal, Sainsbury’s and Asda will remain separate brands – stores will not be rebranded, and neither business will be subsumed into the other.
Sainsbury’s said the acquisition would enable it to invest in price, quality, range and creating more flexible ways to shop in stores and through digital channels across the Sainsbury’s, Asda and Argos brands.
The deal will generate net EBITDA synergies, post investments in price, of at least £500 million across the entire group.
The combined business will be chaired by Sainsbury’s chairman David Tyler and led by Sainsbury’s CEO Mike Coupe. Asda will continue to be run from Leeds with its own CEO, who will join the group operating board of the combined business.
© FoodBev Media Ltd 2019
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