Supermarket merger plans stun industry

Sainsbury’s will shed more light on its £12 billion merger with Asda this week, with the sector bracing for the implications of the shock move.

The duo admitted on Saturday that they are in advanced talks over a merger which would create a new supermarket giant with over £50 billion in sales.

If it goes ahead, the combination will create a high street titan with a bigger share of the market than Tesco.

Asda is owned by the world’s largest supermarket retailer, Walmart, and while it is unclear exactly how the deal would be structured, one option is for Sainsbury’s to absorb Asda stores, with Walmart taking a large stake in the combined group.

In a statement issued over the weekend, Sainsbury’s confirmed the talks and said a further announcement will be made today, when the supermarket’s management will also present the plan to City analysts.

Latest figures show that Tesco has a 27.6% market share, while Sainsbury’s has 15.8% and Asda has 15.6%. Together, they would move ahead of Tesco, with 31.4% of the market.

However, the merger would need approval from the Competition and Markets Authority (CMA) as the two entities are the second and third largest grocery retailers in the UK.

There is promise, however, that a deal could be approved after the CMA’s decision to allow Tesco to take over wholesaler Booker in a deal worth £3.7 billion.

Sainsbury’s chief executive Mike Coupe led a £1.4 billion takeover of Argos in 2016.

The new move comes as the so called Big Four – Tesco, Sainsbury’s, Asda and Morrisons – have come under increased pressure from the rise of budget chains Aldi and Lidl, who between them have a 12.6% grocery market share in the UK.

Sainsbury’s is set to announce details of the bid today.