Tue, May 01, 2018 - Page 10 News List

Sainsbury to buy Asda for US$10bn from Walmart


UK grocer J Sainsbury PLC plans to buy Walmart Inc’s Asda in a £7.3 billion (US$10 billion) deal that would transform the country’s supermarket industry and leave the US retailer as the combined company’s biggest shareholder.

Sainsbury would pay Walmart £2.98 billion in cash and £4.3 billion in stock, it said in a statement.

The deal would create a supermarket giant rivaling or surpassing Tesco PLC in market share, with £51 billion in sales, 2,800 stores and 330,000 employees.

The combined company would gain clout with suppliers, which could help it compete against Amazon.com Inc and keep costs in check at a time when mainstream grocers face a growing threat from discounters Lidl Stiftung & Co and Aldi.

Sainsbury chief financial officer Kevin O’Byrne struck an optimistic note in view of potential regulatory hurdles, saying the two businesses are complementary in terms of geography, and that consumers would benefit from lower prices as a result of the company’s greater scale.

Sainsbury said it expects to cut prices of many frequently purchased goods by about 10 percent as a result of the deal.

“The market has changed dramatically since the last time the regulator looked at this,” O’Byrne said on Bloomberg Television, citing the rise of discounters and online offerings.

Sainsbury said it expects synergies of at least £500 million from the deal and plans no store closures as a result.

Sainsbury chief executive officer Mike Coupe is to serve as chief executive officer.

The target for savings is “conservative” and buying synergies alone could potentially reach £1 billion, Berenberg Bank analyst Dusan Milosavljevic said by e-mail.

Sainsbury represents a less risky investment now that Walmart and the Qatar Investment Authority, the grocer’s biggest shareholder prior to the deal, would together hold more than half of the company’s shares, he said.

Walmart, which in 1999 bought Asda for £6.7 billion, said in a separate statement that it expects to record a non-cash loss of about US$2 billion as a result of the transaction, reflecting the current value of shares it is receiving and foreign-exchange rates.

The transaction builds on Sainsbury’s acquisition of general-merchandise retailer Argos for £1.4 billion two years ago.

While Coupe has defied some analysts’ expectations by successfully integrating Argos and wringing out cost savings, weaving together Asda with Sainsbury could present bigger challenges.

Asda is favored by shoppers on tight budgets, while Sainsbury appeals to a more affluent crowd.

Sainsbury has expanded aggressively into convenience stores and is focused on the south of England around London, while Asda has more large supermarkets spread across the country’s north.

There is a significant risk that the transaction will be blocked by regulators, Jefferies Group LLC analyst James Grzinic said by e-mail.

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