Sainsbury’s tables US$10 billion bid for Walmart’s Asda in an international advance

UK – Sainsbury’s, the second largest chain of supermarkets in the UK has made what is considered as one of the biggest international move in the combative retail sector to merge with Walmart’s Asda for US$10 billion.

Sainsbury’s is beefing up competition against Tesco, UK’s leading retailer in grocery and general merchandise for the lucrative market share that has attracted the likes of American Amazon who have revamped the ecommerce chain with several acquisitions.

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Bloomberg reported that the acquisition, which awaits regulatory approval, would be one of the Britain’s biggest deals in the sector for more than a decade, since it joins the second and third largest food retailers in the country.

The proposed merger will see Sainsbury’s and Asda join forces to generate savings as well as buying power to place itself at a better competitive edge to that of fast-growing discounters, Aldi and Lidl.

The deal aims to deliver Sainsbury’s a double digit rise in earnings by the second full year post-completion, generate synergies of at least 500 million pounds and enable prices to be lowered by about 10% on many products.

In return Walmart will receive US$4.09 billion in cash and 42% stake in the combined business valuing Asda at 7.3 billion pounds on a debt-free basis while Sainsbury’s equity was valued at 6 billion pounds.

In the merged company, Sainsbury’s CEO Mike Coupe, who used to work for Asda, Chairman David Tyler and finance chief Kevin O’Byrne will retain their positions and Asda CEO Roger Burnley, who worked at Sainsbury’s for a decade, will continue to run the Asda business, which will retain its brand.

The retail space is also competed for by Tesco, who in a bid to match Amazon’s ecommerce strengths completed a US$4.44 billion Booker takeover.

The cash and share deal for Asda, said to have been struggling for the last five years may mean a stealthy exit by Walmart, who bought Asda for US$9.15 billion in 1999.

According to Bloomberg, analysts suggested the deal may be faced with regulatory fears and competition hitches especially from Morrisons and the Co-operative, UK’s number four and six players respectively.

“The most aggressive response by Morrisons would be a bid for Sainsbury’s,” Jefferies analyst James Grzinic said.

Coupe said if at all Britain’s Competition and Markets Authority (CMA) required them to sell stores, they would sell them as trading entities.

“One thing I can say with certainty is that the CMA will not ask us to close stores. The CMA may or may not ask us to sell stores,” he noted.

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