Sainsbury's eyes tech investments ahead of Asda merger
May 01, 2018, 08:46
The blue-chip index has received a lift from Sainsbury's, whose shares have spiked 17.11 percent to 315.95p, after the blue-chip grocer announced plans to merge with Walmart'sAsda, against the background of stiff competition in the United Kingdom grocery market.
Britain's second and third biggest supermarket chains Sainsbury's and Walmart-owned Asda have agreed to merge, the pair said Monday, hoping to create a £13 billion ($18 billion, 15 billion euro) retail king and leapfrog United Kingdom number one Tesco.
"Two businesses that can not find a way to grow through shopkeeping and so are combining".
"This is about buying power, operational efficiency and also about sharing technical expertise", he says.
"The recent approval of Tesco's takeover of Booker group may give some cause for confidence, though that deal was a vertical rather than a horizontal integration, with neither company competing directly in their key markets".
"The vast majority of colleagues in both businesses are employed in stores". If this deal goes through, it would be the second major transaction since he took over four years.
Shares in Sainsbury's jumped 16% in response to the merger news.
Will Sainsbury's and Asda still look the same?
Sainsbury's said the deal would help to "reduce [its] lease-adjusted leverage, benefiting from Asda's high freehold property ownership and pension-free balance sheet, protecting the interests of hundreds of thousands of Sainsbury's and Asda pension holders".
Patrick O'Brien, retail research director at GlobalData, said: "While there are no plans to close any stores at this time, regulators will be looking to see how many Asda stores are in close proximity to Sainsbury's stores". In addition, any overlap between the brands would undermine their respective propositions and result in the cannibalisation of sales. It should be noted that both companies will find it hard to grow organically at the pace of other competitors and hard to keep pace with the market share of Tesco. "As growth in the clothing sector continues to elude physical retail, the grocers must utilise the online channel to retain customer loyalty".
"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", added Roger Burnley, Chief Executive Officer of Asda.
U.S. multinational retail company Walmart owns a 51% stake in local retailer Massmart, which owns Game, Builders, DionWired, Makro and Jumbo among others.
Walmart will be a long-term shareholder and partner and will leverage its global scale and investment to support the combined business. Asda, now owned by the US store chain Walmart, was established in Leeds in 1965.
Sainsbury's bought Argos in 2016 and already has more than 200 Argos outlets within its supermarkets, having rapidly expanded over the past year.
CEO Mike Coupe said: "We are focused on making Sainsbury's a destination of choice".
Business minister Andrew Griffiths told MPs that he and Business Secretary Greg Clark were monitoring the deal closely. Sainsbury's posted a modest 1.4% rise in underlying earnings to £589m, a late return to profitability since the grocery sector's near melt-down between 2014-15.
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