said Monday that he would take his British arm Asda Group Ltd. sell to rivals
PLC, a deal that estimates the chain at about £ 7.3 billion ($ 1
Walmart will hold 42% of the combined company and receive nearly £ 3 billion in cash. The Bentonville, Ark. Company will have voting rights up to 29.9%.
If approved by antitrust authorities, the move would pave the way for a new grocery behemoth that would help both companies better against a revival
PLC, Amazon.com Inc. – which continues to push online food stores – and the increasingly popular discounters Aldi and Lidl.
For Walmart, the move is part of a broader shift in shape in joint ventures in competitive markets, focusing on investment in areas that executives believe will lead to growth. It is also in negotiations to sell its majority stake in its Brazilian operations and in advanced discussions to acquire a controlling stake in Flipkart Group, a domestic startup that has become India's largest e-commerce company.
Fierce competition and large numbers of online shoppers means that the UK food market is considered by many retail executives to be the toughest in the world. In response, UK market leaders bought Tesco to Mass last month to acquire £ 3.7 billion from Booker Group PLC, the country's largest food wholesaler, to become Britain's largest grocery store.
Sainsburys, whose shares rose 20% in early trading Monday, said the combined company would have total revenues of around £ 51 billion and more than 2,800 branches. The new business would cut prices for "many" everyday products by about 10%.
Nevertheless, the proposed deal is likely to undergo a major antitrust investigation, as the consolidation of the combined unit could give more power to prices for food. Analysts reported Monday on the high regulatory risk of the transaction and noted that this will be a lengthy process.
Sainsbury buys Asda "would mean a notable boost in UK industry consolidation if it were resolved," Jeffries analyst James Grzinic told two companies "are ready to accept very stringent conditions to get approval."
According to Bernstein analysts, the combined enterprise would have a value of around £ 12 billion, while food market share would be 27 percent, according to Kantar.
Earnings before interest, taxes, depreciation and amortization are expected to increase to at least £ 500m as companies benefit from bulk buying and the opening of Argos stores in the Asda markets. Sainsbury bought Argos-owner Home Retail Group in 2016 for £ 1.4 billion.
The companies plan to keep the two brands Sainsbury and Asda, which have different market positions, the latter being more upscale. It is headed by Sainsbury's Chairman and Chief Executive, while Asda's CEO joins the Board of the Combined Business. Two Walmart executives will also join the board. Sainsbury said it does not expect to close any of its stores or any Asda stores as a result of the deal. For the year ended March 10, Sainsbury reported that earnings fell 18% to £ 309 million, once burdened costs, although adjusted pre-tax earnings increased 1.4%. Fueled sales, but excluding VAT, rose from £ 26.22 billion to £ 28.46 billion.
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