Sainsbury’s swoops for Asda to create £51bn-revenue grocery giant

A £51bn-revenue grocery giant will be created through the merger of two of the UK’s largest ‘Big four’ supermarkets – Sainsbury’s and Asda – in a bid to respond to “significant and rapid” change in the sector.

The merger will result in Walmart holding 42% of the issued share capital, receiving £2.9bn cash; valuing Leeds-headquartered Asda at £7.3bn.

In an update to the markets this morning, Sainsbury’s said the supermarkets would maintain both brands and combine more than 2,800 Sainsbury’s, Asda and Argos stores and retail websites.

Sainsbury’s said it would create greater choice for customers through more store formats and channels, with a combined 47 million customer transactions per week. The group would employ more than 330,000 staff members.

The supermarkets said that grocery prices would fall in both stores as a result of the merger. They also confirmed that the Asda head office would remain in Leeds.

Sainsbury’s said: “The retail sector is going through significant and rapid change, as customer shopping habits continue to evolve. This has led to increased competition across grocery, general merchandise and clothing, as customers seek ever greater value, choice and convenience.

“Bringing Sainsbury’s and Asda together will result in a more competitive and more resilient business that will be better able to invest in price, quality, range and the technology to create more flexible ways for customers to shop.”

The CEOs at Sainsbury’s and Asda have each worked for both of the supermarkets.

The business will be chaired by the Sainsbury’s chairman and led by the Sainsbury’s CEO and CFO. Asda will continue to be run from Leeds with its own CEO Roger Burnley, who will join the Group Operating Board of the business.

Upon completion, two Walmart representatives will join the Board of the Combined Business as non-executive directors.

Asda chief executive Roger Burnley

Roger Burnley, chief executive of Asda, 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.”

Mike Coupe, chief executive of Sainsbury’s, said: “This is a transformational opportunity to create a new force in UK

Sainsbury’s chief executive Mike Coupe

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.”

Meanwhile, Russ Mould, investment director at AJ Bell, said the proposed tie-up between Sainsbury’s and Asda raised a lot of questions regarding how the competitor and supplier landscape may change.

He said: “Morrisons may want to do something to protect its position such as seek a merger or a deal of some kind with the Co-Op.

“Although this will not make a huge dent into the market share gap between Morrisons and Tesco and the proposed Sainsbury-Asda entity, such a move would at least take Morrisons’ market share back above the combined reach of the discounters Aldi and Lidl, who continue to act as a disruptive force in the UK grocery market.

“Suppliers to Sainsbury’s and Asda face the prospect of potentially having to sell their goods at a lower price. A central part of the corporate tie-up between the supermarket companies is combined buying power strength. That is bad news for small suppliers who could be squeezed out of the market.”

GMB, the union for Asda workers, today issued a warning over a looming “supermarket sweepstake.” Tim Roache, GMB General Secretary, 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. Not least because Asda workers have already voluntarily agreed to change their contracts to be more flexible in order to play their part and help their employer be more profitable.

“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?”