LONDON (Reuters) – Sainsbury's and Walmart's Asda are bargaining to form Britain's largest supermarket group, a combination that surpasses Tesco's grocery market share and will be worth up to £ 15 billion ($ 20.7 billion) ,
Sainsbury's confirmed on Saturday that it and Walmart, the The world's largest retailers, were more advanced discussions about a combination of the businesses of Sainsbury's and Asda, the British grocery wholesalers # 2 and # 3. They said they will make another announcement on Monday at 0600 GMT.
Britain's major grocers, including number 4 Morrisons, have lost stakes in the German discounters Aldi and Lidl, as well as growing demand for Internet grocery stores and the Amazon march.
Sainsbury's gave no details about the structure of the transaction, but one source with knowledge of the situation told Reuters that the combined group's holding company would retain the name of Sainsbury. The boss of Sainsbury, Mike Coupe, who had previously worked for Asda, would lead it, the source said.
The source described the proposed deal – which would consolidate a brutally competitive British food market while helping Walmart address its weaker British arm through greater purchasing power – as a "merger".
Three sources with knowledge of the situation said Walmart would take a minority stake in the combined business. Two said Walmart would be the largest shareholder with around 40 percent.
The Qatar Investment Authority, which in the past has attempted to buy Sainsbury's, is currently the largest shareholder in the supermarket group, accounting for 22 percent. The deal would probably water down this property.
Sainsbury & # 39; s invited media and analysts to lectures scheduled for Monday, pointing to a signed deal.
Walmart declined to comment. Asda did not respond to requests for comment.
Sky News, who first reported the news, said the deal could be worth over 10 billion pounds.
One source, who spoke with Reuters, said the combined company would have enterprise value, including debt of around £ 15 billion, and would continue to be listed in London.
Sainsbury's shares closed at 269 pence on Friday, giving the company a £ 6 billion share value.
The deal would be the largest in the UK supermarket sector since Morrisons acquired the Safeway business in 2004.
Drop in earnings
Sainsbury's announces three winning years in a row and is scheduled to announce a fourth on Wednesday. Asda has suffered two years of falls.
Asda, which Walmart purchased for £ 6.7 billion in 1999, is one of the retail giant's largest and worst performing international companies. Analysts believe that Asda was hit hardest by the rise of discount stores, which undermined its traditional price advantage.
"Asda has no discount and it has no convenience, and this (deal) offers a potential solution for Walmart to deliver a more profitable Asda in the long run," said Shore Capital analyst Clive Black.
In recent years, Walmart has shifted its traditional approach to overseas business development to working with local players, such as China. In January, Walmart appointed Chief Operating Officer Judith McKenna to lead her international unit with a task that included fixing her activities in the UK. McKenna is a Brit and veteran of Asda where she was both COO and CFO.
Roger Burnley, who served as Asda's CEO in January, is a former Sainsbury executive working at Coupe. One of the sources said he would stay with the combined group.
Tesco strengthened its influence over the British food sector last month by completing the £ 4 billion purchase of wholesaler Booker. In 2016, Sainsbury's General Merchandise dealer bought Argos for 1.1 billion pounds.
Sainsbury's and the similarly sized Asda would overtake Tesco with a combined market share of 31.4 percent versus Tesco's 27.6 percent, according to the latest data from market researcher Kantar Worldpanel.
The Asda stores would continue to trade under their own brand, separate from the more upmarket Sainsbury's, it said.
One major uncertainty about a combination would be whether the move receives approval from the UK Competition Authority, the Competition and Market Authority (CMA), as the deal would effectively create a duopoly.
The surprising unconditional turnaround of the Tesco Booker deal by the CMA may have changed the regulatory landscape.
"It's going to be a really big test for understanding the CMA for the market and whether it believes this deal is in the interest of consumers," said Shore Capital's Black.
"It's hard to believe it would not require a sizeable store sales and there are not many buyers."
(19659031) FILE PHOTO: A buyer goes to milk cartons in a corridor passing by Asda Supermarket in London, UK, 17 August 2015. REUTERS / Neil Hall / File Photo
Additional coverage by Nandita Bose in New York ; Arrangement by Georgina Prodhan and Catherine Evans