‘Lower Retail Prices by 10 Per Cent’: Sainsbury’s to Buy ASDA to make Britain’s Largest Supermarket

Saunsbury's
AFP

LONDON (AP) – Sainsbury’s has agreed to buy Walmart’s U.K. unit, Asda, for 7.3 billion pounds ($10.1 billion) in cash and stock in a deal that would create Britain’s largest supermarket chain and marks a profound shift in the country’s grocery market.

The deal combines Britain’s second- and third-largest supermarket chains, giving the combined company 31.4 percent of the market and putting it ahead of the current leader, Tesco, which has 27.6 percent, according to data from Kantar Worldpanel.

The company will retain both the Sainsbury’s and Asda brands and there are no plans to close any of its more than 2,800 stores, the companies said Monday. They aim to lower retail prices as much as 10 percent as a result of the deal.

“This is a transformational opportunity to create a new force in U.K. retail,” Sainsbury’s CEO Mike Coupe said.

Shares in Sainsbury’s jumped 20 percent to 325 pence at the market open.

The move underscores the intense competition in Britain’s grocery market as discounters take market share from traditional chains such as Sainsbury’s and Tesco. Asda has a strong presence in the north of England and Sainsbury’s in the south.

The Bentonville, Arkansas-based Walmart Inc., meanwhile, is building fewer big stores and focusing more on internet businesses in an effort to compete for the online shoppers who use Amazon.

J Sainsbury plc, the chain’s corporate name, says Walmart will receive 4.3 billion pounds worth of Sainsbury’s stock and 2.98 billion pounds in cash. Walmart will own 42 percent of the combined company. Sainsbury’s said the deal will produce costs savings of at least 500 million pounds ($688 million) due to increased efficiency.

The proposed merger is “consistent with our strategy of looking for new ways to drive international growth,” Judith McKenna, CEO of Walmart’s international business, said in the statement.

Coupe described the deal as being “designed for a new era” of retailing, bringing scale in clothing and general merchandise.

Britain’s Competition and Markets Authority said it will “likely” assess whether the deal could reduce competition and choice for shoppers.

The Labour Party’s business spokeswoman, Rebecca Long-Bailey, has already called for an investigation of the proposed deal.

The merger risks “squeezing what little competition there is in the groceries market even further,” Long-Bailey told the BBC on Saturday when the news of a possible deal first emerged.

Richard Lim, the chief executive of research group Retail Economics, described the deal as a “game changer” in the industry.

“The potential tie-up could deliver price reductions across a range of products, putting it in a position to challenge Tesco and the discounters head-on,” he said in a statement. “Serving customers ‘whenever and wherever they want’ would take a giant leap forward with expertise in digital technology dovetailing with an expansive store estate.”

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