Sainsbury’s $10B Asda buyout to create top UK supermarket
london — Sainsbury’s has agreed to buy Walmart’s Asda for about £7.3 billion ($10 billion) to create Britain’s biggest supermarket group by market share, overtaking longstanding leader Tesco.
The industry’s biggest UK deal for over a decade brings together the country’s second- and thirdlargest food retailers, aiming to generate savings and buying power to better compete with fast-growing discounters, a bigger Tesco after its purchase of wholesaler Booker, and the rise of online shopping.
The cash and shares deal, announced on Monday, also provides a potential exit route for Walmart, as Asda, which it bought in 1999 for £6.7 billion, has been struggling to grow as discounters Aldi and Lidl attract its price-conscious customers.
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.
However, the transaction faces significant regulatory hurdles. Britain’s Competition and Markets Authority (CMA) said it was likely to review it.
Nevertheless, Sainsbury’s shares jumped as much as 21 per cent to 327.1 pence, their highest since July 2014 and were on course for their biggest ever daily gain, while shares in rivals Tesco and No. 4 Morrisons fell.
Walmart will receive £3 billion in cash and a 42 per cent stake in the combined business’ equity, valuing Asda at about £7.3 billion on a debt-free basis. Sainsbury’s equity was valued at £6 billion at Friday’s close.
Though Sainsbury’s CEO Mike Coupe said the deal was “a merger, not an acquisition,” Sainsbury’s is the senior partner. Coupe, who used to work for Asda, Sainsbury’s Chairman David Tyler and finance chief Kevin O’Byrne will all retain their positions in the merged company. Asda CEO Roger Burnley, who worked at Sainsbury’s for a decade, will continue to run the Asda business, which will retain its separate brand.
Analysts said the deal was a bet that recent changes in the retail industry — including the rise in online shopping, discounters and Tesco’s purchase of Booker — would ease any opposition from competition regulators.