FINANCE

Walmart to sell Asda to Sainsbury’s in $10 billion deal

BY Marianne Wilson

Walmart’s newest move is positioned to cause a major shakeup across the U.K. grocery store market as two rivals join forces.

Walmart Inc. on Monday announced plans to sell its wholly-owned U.K. subsidiary, Asda Group Ltd., to J Sainsbury PLC in a deal that values the chain at about $10 billion. Under the terms of the agreement, which is subject to various approvals, Walmart would hold a 42% share of the combined business.

Similar to traditional U.S. supermarkets, Asda and Sainsbury’s have been under increased pressure from fast-growing deep-discount grocers Aldi and Lidl, and most recently, Amazon, which has a deal with U.K. grocer Morrisons to provide groceries to British customers via its Pantry and Prime service. Sainbury’s said Walmart would leverage its global scale and investment to support the combined business. Upon completion of the transaction, two Walmart representatives will join the merged company’s board as nonexecutive directors.

The agreement, if successful would create Britain’s largest supermarket group and one of its leading general merchandise and clothing retail companies, with more than 2,800 locations (including Sainsbury’s and its Argos banner, along with Asda). It would also result in some of the U.K.’s most-visited retail websites, with a combined 47 million customer transactions weekly.

“This proposed merger represents a unique and bold opportunity, consistent with our strategy of looking for new ways to drive international growth,” said Judith McKenna, president and CEO of Walmart International. “Asda became part of Walmart nearly 20 years ago, and it is a great business and an important part of our portfolio, acting as a source of best practices, new ideas and talent for Walmart businesses around the world. We are very much looking forward to working closely with Sainsbury’s to deliver the benefits of the combined business.”

The combined company will be chaired by David Tyler, current chairman of Sainsbury’s, and led by Michael Coupe, current CEO of Sainsbury’s.

It will operate with a distinctive dual brand strategy. Asda will continue to be run by its own CEO, Roger Burnley, who would join the board of the combined business, “ensuring Asda retains its heritage and roots,” Walmart 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,” Burnley stated. “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.”

The combined business is expected to generate at $688.62 million in cost savings and lead to a reduction in prices of about 10%, according to the grocers.

The move also comes on the heels of Walmart pursuit of a deal with Flipkart, India’s leading e-commerce player. The discount giant is negotiating to buy a more than 51% stake in the Indian online marketplace.

Walmart expects to recognize a non-cash loss of approximately $2 billion, which is based on the current value of shares to be received and current foreign exchange rates. The timing of the loss has not yet been determined, and regulatory approval could extend into the second half of 2019.

For commentary by industry analyst Neal Saunders, click here.

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