LONDON (Reuters) – Sainsbury's acquires Walmart's Asda for around 7.3 billion pounds ($ 10 billion) in a bold bid to overtake longtime leader Tesco as the UK's largest supermarket group for market share.
If granted regulatory approval, the country's largest and second-largest grocery retailers for more than a decade will unite the largest UK businesses in the sector, triggering speculation about further consolidation.
Sainsbury's and Asda's aim is to generate savings and purchasing power to better match the fast-growing discounters Aldi and Lidl, a larger Tesco after booker retailer Booker received £ 4 billion and the rise of online shopping, especially the march, to be able to compete from Amazon.
Monday's cash and stock deal also marks a possible exit for Walmart, as Asda, which bought $ 6.7 billion in 1
Analysts said the deal was a bet that seismic changes in retail would mitigate regulatory fears and some speculated that Morrisons and Co-operative, UK's number 4 and number 6, could react.
"The most aggressive response from Morrisons would be an offer for Sainsbury's," said Jeffries analyst James Grzinic.
Although the UK Competition and Market Authority (CMA) said it would likely review the deal, Sainsbury's shares rose 21 percent, peaking at 14.5 percent since July 2014. The shares of Tesco and Morrisons each closed at 1.3 percent.
Sainsbury's said the deal would result in a double-digit profit increase in the second full year after completion, creating synergies of at least £ 500 million and lowering prices for many products by about 10 percent (Britain's largest supermarket) stocks : Reut.rs/2JFk1qV)
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Walmart receives £ 3 billion in cash and 42 percent of the combined business, with Asda rated at £ 7.3 billion. Sainsbury's equity was estimated at £ 6 billion on Friday.
Sainsbury's CEO Mike Coupe, who previously worked for Asda, Chairman David Tyler and CFO Kevin O. Byrne retain their positions in the merged company. The CEO of Asda Roger Burnley, who worked for Sainsbury for a decade, will continue to lead the Asda business, which will retain its brand.
Coupe said, "The world has changed and there is more competition than ever" since Morrison's acquisition of Safeway in 2004 – the sector's last mega deal.
"One thing I can say with certainty is that the CMA does not ask us to do business, but the CMA can not or should not ask us to sell it," he said, adding that Trading companies were sold.
Analysts said shoppers might be hard to find. "We see no chance for the CMA to get away without a significant fragmentation of the combined business," said Peel Hunt analyst Charles Hall, adding that Morrisons is the only viable buyer of a large chunk.
The CMA's surprise decision to unconditionally clear the Tesco / Booker deal has encouraged Sainsbury's and Asda to believe that they could get through a viable deal and that Coupe wants the CMA to be a "phase." 2 "exam can be completed in the second half of 2019.
Together, Sainsbury's and Asda have around 2,800 stores, more than 330,000 employees, and a combined market share of 31.4 percent versus Tesco's 27.6 percent, according to market researcher Kantar Worldpanel ,
The two have different cultures and different customers, with London-based Sainsbury's focusing heavily on private label products, and Asda, headquartered in Leeds, northern England, focuses on price. In Northern Ireland, however, there is considerable overlap.
Bernstein analyst Bruno Monteyne pointed to the execution risks and found that Morrisons-Safeway lost 28 percent of its revenue through a combination of shop sales, integration issues and cultural clashes when they merged.
Approximately £ 350 million of planned synergies would be achieved through the purchase of savings and £ 75 million through the establishment of Sainsbury's General Merchandise Specialist Argos in Asda branches. Sainsbury's bought Argos in 2016 for 1.1 billion pounds.
After a two-year lock-up period, Walmart is allowed to reduce its stake in the Combined Group to 29.9 percent and give it up completely after four years.
Walmart International boss Judith McKenna said the company, which will have two seats on the combined operations board, will be a long-term partner.
The Qatar Investment Authority, currently the largest shareholder of Sainsbury & # 39; s with a 22 percent stake, said it supports the deal.
On both sides, a one per cent gain on Sainsbury's market capitalization is due.
Sainsbury's also reported on his annual results, which showed a first profit increase in four years and was confident to hit analysts' earnings forecasts for 2018-19.
($ 1 = 0.7256 pounds)
Additional coverage by Sarah Young and Paul Sandle, edited by Mark Potter and Alexander Smith