Sainsbury’s and Asda to merge

Sainsbury's and Asda stores

Sainsbury’s has agreed to buy Asda from Walmart in a deal that will see the combined business become the UK’s biggest supermarket chain.

Current number one Tesco holds a 27.8% share of the grocery market. A merged Sainsbury’s and Asda would command 31.1%.

Sainsbury’s shares rocketed by 20% this morning (April 30) on the back of the announcement.

Walmart will receive just shy of £3bn and a 42% stake in the merged company. The deal values Asda at £7.3bn, dwarfing Tesco’s £4bn takeover of Booker.

Sainsbury’s said it expected to slash prices by around 10% on “many of the products customers buy regularly” after the merger and that the Asda brand would be maintained.

Sainsbury’s Chief Executive Mike Coupe will take charge of the joint business. He is “100% confident” that stores won’t need to close following the merger. The CMA may have other ideas, given the large number of Asda stores very near to Sainsbury’s branches.

Parliament’s Business and Environment committees have already written a joint letter (May 3) to the competition watchdog expressing concerns over this very matter, as well as the impact the deal may have on the grocery supply chain.

Aside from potential store closures, there are also concerns that jobs could be lost when the new business streamlines its admin, warehousing and logistics operations. The two companies currently employ over 330,000 staff between them.

The GMB, the union representing Asda workers, warned of a looming “supermarket sweepstake”. General Secretary Tim Roache said: “Hundreds of thousands of workers stand to be affected, and all know such announcements tend to be followed by management speak like ‘rationalisation’ in the name of ‘efficiency’. What that usually means is job losses or cuts to pay, terms and conditions which would be wholly unacceptable.

“It is quite right to be asking now in whose interests this proposed merger is being tabled. Is it workers and customers or the shareholders and speculators not happy with the hundreds of millions they already make in a year?”

Commenting on the deal, Mike Coupe, Chief Executive Officer of Sainsbury’s, said: “This is a transformational opportunity to create a new force in UK retail, which will be more competitive and give customers more of what they want now and in the future. It will create a business that is more dynamic, more adaptable, more resilient and an even bigger contributor to the UK economy.

“Having worked at Asda before Sainsbury’s, I understand the culture and the businesses well and believe they are the best possible fit. This creates a great deal for customers, colleagues, suppliers and shareholders and I am excited about the opportunities ahead and what we can achieve together.”

Catherine Shuttleworth, CEO at shopper & retail marketing agency Savvy, commented: “The potential of Sainsbury’s and Asda joining forces creates a new dimension for the UK grocery market. Whilst it’s unclear what form this merger may ultimately take it was always necessary to consolidate to survive. Could this be the catalyst for Amazon to make a real move?”