Sainsbury's and Asda agree to join forces

Compact Could Co-op and Morrisons become the next supermarkets to join forces

SHARES in J Sainsbury soared almost 15 per cent after the grocer unveiled details of its proposed £7.3 billion takeover of Asda, with the supermarket giant insisting it has no plans to close any stores as part of the deal.

The blockbuster deal - which is effectively a takeover bid with Sainsbury's acquiring a 58-percent stake in the combined group and Walmart the remainder - comes as long-established United Kingdom supermarkets battle fierce competition from German-owned discounters Aldi and Lidl and online USA titan Amazon.

It is seeking clarity on the future of Asda's stores in Scotland and its distribution centres in Falkirk and Grangemouth.

Both the Sainsbury's and Asda brands would be retained, and Sainsbury's said there are no plans to close any stores, stating that there will be more opportunities for the combined workforce of more than 330,000 "at all levels". He said: "The recent approval of Tesco's takeover of Booker group may give some cause for confidence, though that deal was a vertical rather than a horizontal integration, with neither company competing directly in their key markets".

He vowed to ensure that the deal also benefits the supermarkets' suppliers, who often complain of being squeezed on price.

Details of the cash and shares deal unveiled yesterday would see Asda owner Walmart receive almost £3bn and a 42% of the shareholding in the combined group.

If coupled with Asda's successful George clothing line, the combined business could stand as a competitor to the likes of United Kingdom value clothing retailers such as Primark. Sainsbury's market capitalisation stood at £5.9 billion at the close of business on Friday.

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.

He said in a statement afterwards that it was "an unguarded moment" as he tried to compose himself before a television interview.




"It was an unfortunate choice of song from the musical '42nd Street, ' which I saw previous year, and I apologise if I have offended anyone", Coupe said in the statement.

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

The combined business would have total revenues of £51 billion.

"We believe the combination offers a unique and exciting opportunity that benefits customers and colleagues", said President and Chief Executive Officer Doug McMillon, according to a press release.

Sainsbury's said the combination would generate synergies of at least £500 million and enable prices to be lowered by about 10 per cent on many products.

Simran Jagdev, analyst at the Economist Intelligence Unit, added: "The deal points to the highly competitive United Kingdom grocery market, which has always been concentrated in the hands of the top four players - Tesco, Sainsbury's, Asda, Morrisons - but is now facing an onslaught from new challengers".

In March, Tesco completed the purchase of wholesaler Booker - Britain's biggest cash-and-carry operator - for £3.7 billion. Although Sainsbury thinks they will be able to avoid any closures.

Asda traces its roots back to the 1920s and was bought by Walmart in 1999.

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