Sainsbury’s and Asda merger: Terms to be met

Sainsbury’s and Walmart have today entered into an agreement which sets out the terms upon which the merger will take place.

The merger will be structured as an acquisition by Sainsbury’s of the entire issued share capital of Asda and is conditional upon several clauses including Sainsbury’s shareholder approval and Competition and Markets Authority approval.

Completion of the merger is expected in the second half of calendar year 2019.

It is proposed that the combined grocery business be listed on the official list of the Financial Conduct Authority and traded on the London Stock Exchange. The merger is classified as a reverse takeover of Sainsbury’s under the Listing Rules of the FCA.

There must also be a change in control approval from the Prudential Regulatory Authority in respect of Sainsbury’s Bank and the Financial Conduct Authority must agree to to certain Asda and Sainsbury’s regulated entities moving across.

There must also be an agreement with the trustees of the Asda Group Pension Scheme to allow this scheme to remain with Walmart.

The supermarkets must also enter ancillary agreements, including a transitional services agreement, covering predominantly IT related services, as well as a co-operation agreement and a trade mark licence agreement.

If the conditions are not satisfied or, where capable of being waived, waived by 30 April 2020, either Sainsbury’s or Walmart may terminate the agreement.

A shareholder circular is expected to be sent to shareholders after publication of the CMA’s final report.

David Tyler, chairman of Sainsbury’s, said: “We believe that the combination of Sainsbury’s and Asda will create substantial value for our shareholders and will be excellent news for our customers and our colleagues. As one of the largest employers in the country, the combined business will become an even greater contributor to the British economy.

“The proposal will bring together two of the most experienced and talented management teams in retail at a time when the industry is undergoing rapid change. We welcome Walmart as a significant shareholder and look forward to working closely with them.”

Andy Brian, head of retail at Yorkshire law firm Gordons, said: “This potential deal has come as a huge shock even for those in the industry and it seems people are still guessing what might happen if Asda and Sainsbury’s were to join forces.

“One thing is clear; despite what is being said officially, stores would have to close. That’s not necessarily a bad thing for the brands, although it would of course be a bad thing for those store employees. Moving forwards, one theory is that this deal could allow Sainsbury’s the freedom to compete hard against M&S Food and Waitrose at the top end of the grocery market and leave Asda to compete further on price against the other mid-market players, as well as Aldi and Lidl.
“It’s not yet clear whether that’s the real intention but any deal would undoubtedly shake up the UK supermarket sector, possibly like never before.”