Sainsbury’s soars on back of ‘bold gamble’
SAINSBURY’S shares soared yesterday as investors cheered its proposed £14billion merger with Asda to create Britain’s biggest supermarket.
A deal to unite the country’s second and third biggest grocers to overtake market leader Tesco was hailed by Sainsbury’s chief executive Mike Coupe as a “transformational opportunity to create a new force in UK retail”.
Coupe, who two years ago oversaw the £1.4billion acquisition of Argos owner Home Retail Group, argued the tie-up with Asda would create a “more dynamic and resilient” business.
He played down fears of job losses and insisted no stores would be closed, with the bulk of estimated £500million cost savings coming from better buying terms and property, including the roll-out of Argos stores in Asda supermarkets.
Coupe said: “It has never been more competitive and customers have more choices than ever. Whether it is the rise of the discounters or digital technologies giving customers access to markets there are significant structural changes. This gives both organisations an opportunity to compete in that environment.”
Asda’s US parent Walmart will receive nearly £3billion in cash and will hold 42 per cent of the combined business, which will have over 2,800 stores across the UK and Ireland and more than 330,000 staff. The deal, expected to be fast-tracked to an in-depth probe by competition regulators, is set to complete in the second half of next year.
The Competition and Markets Authority said the merger was likely to be subject to review. Sainsbury’s brought forward its annual results, which showed a 1.4 per cent rise in underlying pre-tax profit to £589million on 9 per cent higher sales of £31.7billion. Its shares jumped 39¼p to 309p. Some analysts questioned whether the combination would be approved by regulators.
Peel Hunt’s Charles Hall said: “We see no chance of it getting through the CMA without a major dismemberment of the combined business.”
Bernstein analyst Bruno Monteyne said: “This is a bold gamble. The deal could unravel acrimoniously if the CMA sticks to its old rules and parameters.”