Sainsbury’s confirms plans to merge with rival Asda

Sainsbury’s has confirmed its intention to merge with supermarket rival Asda.

The merger would see more than 2,800 Sainsbury’s, Asda and Argos stores - and several of the UK’s most-visited retail websites - trade under one combined business.

The deal, subject to approval by the Competition and Markets Authority (CMA) and shareholders, means Asda-owner Walmart would take a 42% stake in the combined business, valuing Asda at approximately £7.3bn. Sainsbury’s said both brands would be retained as part of the agreement.

In a statement, Sainsbury’s said the combined business will ”create a dynamic new player in UK retail with an outstanding breadth of products, delivered through multiple channels”.

Sainsbury’s also said the merger would allow both brands “to lower prices by up to 10%” on regularly-bought items, offering consumers ”more flexible ways to shop in stores and through digital channels”.

Sainsbury’s chief executive Mike Coupe 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.”

Asda chief executive Roger Burnley said: “The combination of Asda and Sainsbury’s into a single retailing group will be great news for Asda customers, allowing us to deliver even lower prices in store and even greater choice. Asda will continue to be Asda, but by coming together with Sainsbury’s, supported by Walmart, we can further accelerate our existing strategy and make our offer even more compelling and competitive. From my six years with Asda and ten years with Sainsbury’s, I know first hand that both organisations are fortunate to employ some of the most talented and customer-focused colleagues in this market and I am excited by the opportunity of the two coming together.”

Commenting on the merger, Association of Convenience Stores (ACS) chief executive James Lowman said: “Convenience retailers will be thinking about the knock-on effect of a Sainsbury’s/Asda merger on their businesses and on this sector.

”What will be the strategy for the Sainsbury’s Local convenience stores, and will the combined business look to engage with independents through a wholesale or franchise model – something Sainsbury’s has looked at in recent months? What will happen to buying power in the grocery market, and how will this impact on suppliers and on smaller retailers and wholesalers? What will be the implications for the fuel retailing market from these two large fuel retailers coming together?”

He added: “The Competition and Markets Authority will look at this merger and needs to consider these questions as part of that inquiry. Consumers win when there is vibrant competition and choice, and people increasingly fulfil their shopping needs through a variety of large and small stores, online shopping and eating out of the home. The CMA needs to think carefully about these changing shopping behaviours and consider the full implications of this deal.”

Tesco shareholder and founder of Latitude Investment Management, Freddie Lait, said the Sainsbury’s/Asda deal could add value to the Tesco value proposition.

“The new entity will be forced to sell or close some stores, which will benefit Tesco and Morrisons, while causing disruption to the new business,” he said. ”More concentrated market structures tend to derive greater aggregate profit pools so, in the medium term, we expect this to be a supply side tailwind for the sector; Tesco has widened its pricing gap versus its peers over the past few years so any benefit from deal synergies is required just to ease the pricing gap; [and] the deal will take at least a year to close, through which period Tesco will be able to further demonstrate the newfound resilience of their business model, as well as seeing growth upside from the Booker integration.”

Catherine Shuttleworth, ceo of shopper and retail marketing agency Savvy, said: “We were always expecting something to happen to consolidate the grocery market.

”The middle ground has been squeezed the most by the inevitable march and expandability of the discounters, a reinvigorated Tesco with Booker under its wing is less arrogant and more relevant than with support from suppliers and conversion with shoppers, so the potential of Sainsbury’s and Asda joining forces creates a new dimension for the UK grocery market.”