Sainsbury’s and Walmart’s Asda are in talks to create Britain’s biggest supermarket group, a combination which would surpass Tesco’s grocery market share and be worth up to 15 billion pounds ($20.7 billion).
Sainsbury’s confirmed on April 28 that it and Walmart, the world’s largest retailer, were in advanced discussions regarding a combination of the Sainsbury’s and Asda businesses, the UK’s No. 2 and 3 UK grocers. It said they will make a further announcement early on April 30.
Britain’s big grocers, including No. 4 player Morrisons , have been losing share to German discounters Aldi and Lidl and must also deal with growing demand for internet grocery shopping and the march of Amazon.
Sainsbury’s gave no details of the deal’s structure but a source with knowledge of the situation told Reuters the holding company of the combined group would retain the Sainsbury’s name. Sainsbury’s Chief Executive Mike Coupe, who used to work for Asda, would lead it, the source said.
The source described the planned deal – which would consolidate a brutally competitive U.K. food market while helping Walmart address its underperforming U.K. arm through greater buying power – as a “merger.”
Three sources with knowledge of the situation said Walmart would take a minority stake in the combined business. Two said Walmart would be the biggest shareholder, with a stake of around 40 percent.
The Qatar Investment Authority, which has tried to buy Sainsbury’s in the past, is currently the supermarket group’s biggest shareholder with a 22 percent stake. The deal would probably dilute that holding.
Sainsbury’s invited media and analysts to presentations scheduled for April 30, indicating a done deal.
Walmart declined to comment. Asda did not respond to requests for comment.
Sky News, which first reported the news, said the deal could be worth over 10 billion pounds.
One of the sources who spoke to Reuters said the combined company would have an enterprise value, including debt, of around 15 billion pounds and would remain listed in London.
Sainsbury’s shares closed on Friday at 269 pence, giving the company an equity value of 6 billion pounds.
The deal would be the largest in the U.K. supermarket sector since Morrisons acquired the Safeway business in 2004.
Sainsbury’s has reported three straight years of profit decline, and is forecast to report a fourth on Wednesday. Asda has seen two years of falls.
Asda, which Walmart bought in 1999 for 6.7 billion pounds, is one of the retail giant’s largest and worst-performing international businesses. Analysts reckon Asda was hurt the most by the rise of the discounters, which eroded its traditional price advantage.
“Asda doesn’t have discount and it doesn’t have convenience. This (deal) provides a potential solution for Walmart to deliver a more profitable Asda in the long run,” said Shore Capital analyst Clive Black.
In recent years Walmart has shifted its traditional approach from building overseas businesses itself to partnering with local players, for example in China.
In January, Walmart appointed Chief Operating Officer Judith McKenna to run its international unit with a remit that included fixing its UK operations. McKenna is a Briton and a veteran of Asda, where she served as both COO and finance chief.
Roger Burnley, who took over as Asda CEO in January, is a former Sainsbury’s executive, working under Coupe. One of the sources said he would stay at the combined group.
Tesco last month moved to strengthen its grip on the UK food sector, completing the 4 billion-pound purchase of wholesaler Booker. In 2016 Sainsbury’s purchased general merchandise retailer Argos for 1.1 billion pounds.
Sainsbury’s and the similarly-sized Asda would overtake Tesco with a combined market share of 31.4 percent versus Tesco’s 27.6 percent, according to the latest data from market researcher Kantar Worldpanel.
Asda stores would continue to trade under their own brand, separate from the more upmarket Sainsbury’s, the sources said. (REUTERS)