Sainsbury’s shares rise over 20% on news of merger with Asda

Shares in food retailer Sainsbury’s rose by over 20% to 324p following news of a planned merger with Walmart-owned Asda. The planned merger between the supermarket chains will see the group hold 30% of the UK grocery sales’ market and overtake Tesco to become the UK’s largest supermarket.

Sainsbury’s / Asda Merger

The merger of the two supermarket chains will see Argos outlets fitted into Asda branches. Sainsbury’s took over Argos in 2016 and has already incorporated these catalogue outlets into its own stores. US company Walmart is currently the owner of Asda and this deal will provide Walmart with around £3bn in cash and a 42% ownership of the combined business.

The deal gives the Asda brand a value around £7.3bn and both brands will continue to operate under their distinct names. It’s understood that Walmart is interested in expanding the Argos brand globally.

No Planned Closures

Both Sainsbury’s and Asda are struggling to maintain profits in the highly competitive supermarket sector, due to the growth of cut-price discount chains such as Aldi and Lidl. Sainsbury’s announced a 9% increase in sales to the year to March 10, however, pre-tax profits were down by 19%. Both retailers have stated they don’t plan any store closures following the merger and Sainsbury’s has claimed it will be able to cut prices by as much as 10% after the deal goes through.

Deal Completed By Autumn 2019?

The merger will see the combined group operating out of 2,800 stores, but it is unlikely to be finalised before autumn 2019 at the earliest. The UK Competition and Markets Authority will be scrutinising the merger proposal with care to ensure competition laws and consumer choice are not detrimentally affected.

Sainsbury’s current chief executive, Mike Coupe, is expected to lead the merged supermarkets and stated on Monday, 30 April that he was confident the merger would allow both supermarkets to benefit from a minimum of £500m in cost savings, as a result of improved deals with suppliers and higher levels of efficiency.

Mike Coupe said: “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“.

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