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Sainsbury’s, Asda agree to merge to create new force in UK retail

RBR Staff Writer Published 01 May 2018

Sainsbury’s has agreed to merge with Walmart subsidiary Asda in a deal that will create a supermarket powerhouse with over 2,800 stores.

The combination will create a grocery, general merchandise and clothing retail group in the UK, with combined revenues of £51bn for 2017.

Walmart will own 42% of the issued share capital of the combined business and receive £2.975bn of cash (subject to customary completion adjustments),

The deal values Asda at about £7.3bn on a debt-free, cash-free and pension-free basis.

At the time of completion of the combination, Walmart will not hold more than 29.9% of the total voting rights in the combined business.

The combined network will include more than 2,800 of Sainsbury's, Asda and Argos stores along with several retail websites. The combined customer transactions per week are expected to reach 47 million per week.

The deal will enable investment to be made in areas which are expected to benefit most customers in terms of price, quality, range and creating flexible ways to help continue customers shopping in stores and through digital channels.

Prices are expected to be decreased by 10% on many of the products customers buy regularly. The combination is estimated to generate net EBITDA synergies, post investments in price, across the enlarged group of about £500m.

These will mostly include buying benefits, opening Argos in Asda stores and operational efficiencies. Sainsbury’s also stated that it does not plan to close down any of its and Asda stores.

The combination is also expected to create opportunities for more than 330,000 employees at all levels with the two companies.

It will create significant opportunities for suppliers in developing differentiated product ranges and offer substantial value creation for shareholders of Sainsbury’s.

Sainsbury's CEO Mike 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.”

Image: Officials of Sainsbury’s and Asda group. Photo: courtesy of Sainsbury's.