What has been announced?
Sainsbury’s and Asda have agreed to combine their businesses in a merger that would create the UK’s largest grocery chain, with a combined market share of 31.4%. (Tesco has 27.6% of the market, based on Kantar Worldpanel data for the 12 weeks to 25 March 2018.)
The announcement came on Monday morning (30 April) after a weekend of intense speculation, following a Bloomberg article that lifted the lid on the proposed deal.
What is the value of the deal?
When the deal broke, a flurry of different figures floated around in the media, variously describing the merger as a £10bn, £12bn, £15bn or even £51bn deal.
What we know is the two companies’ sales are worth a combined £51bn, while Sainsbury’s is paying £2.975bn to Asda parent company Walmart in order to retain a controlling stake in the new venture. The mix of cash and shares is worth £7.3bn.
The combined Asda and Sainsbury’s group was worth £13.2bn as of 7am this morning, though this value has since risen because Sainsbury’s share price has soared following the merger announcement.
Who will run the combined Sainsbury’s-Asda?
Most of the senior management for the new combined business will be provided by Sainsbury’s, including the CEO (Mike Coupe), chairman (David Tyler) and CFO (Kevin O’Bryne). Roger Burnley will remain Asda CEO and will also have a seat on the board of the new business. Walmart, meanwhile, will hold a 42% stake in the combined business.
How has the market reacted to the news?
Sainsbury’s shares soared in the wake of the merger announcement, hitting their highest level in almost four years. By contrast, some listed suppliers suffered stock market losses amid fears the merger could put pressure on suppliers to deliver cost savings.
What’s going to happen to the Sainsbury’s and Asda brands?
Both will remain. The plan is to keep both fascias, although the combined Sainsbury’s/Asda entity will be known as Sainsbury’s plc.
Will any stores close as a result?
Sainsbury’s and Asda insist there are no planned store closures. However, competition regulator the CMA may well have different ideas and could require stores to be sold off before it agrees to give the deal the green light.
What does all this mean for consumers?
Sainsbury’s and Asda say their merger will lead to in-store prices coming down by an average of 10% “on many of the products customers buy regularly”. The deal will also give customers more choice and “more flexible ways to shop in stores and through digital channels”.
What are the implications for suppliers?
With stores closures not on the cards currently, some suppliers already fear they will be squeezed to deliver the 10% price cuts Sainsbury’s and Asda are promising. In a presentation to analysts on Monday, the companies pointed out 85% of their products are currently supplied by the same 100 suppliers. Mike Coupe expects the deal to generate savings of £500m; of this £350m will come from leveraging the buying power of the combined business.