Sainsbury's share price soars after Asda merger announcement

Sainsbury’s share price has risen by 15% after it confirmed a merger with Asda that will create the UK’s largest retailer.

The proposed new business will have £51 billion in revenues, 330,000 employees and 47 million transactions a year. 

Walmart, Asda’s American owner, will get nearly £3 billion in cash and 42% of the combined business, but voting rights of 29.9%.

The group would enjoy a 31% share of the grocery market, putting it ahead of Tesco, which commands 27%.

However, the merger is subject to approval from the Competition and Markets Authority, which said it is “likely” to review it.

Around 70 Asda stores are located less than a mile away from a Sainsbury’s store, and they would come under close scrutiny.

But even if it has to sell off some of the Asda estate, the deal is expected to go through, and the City responded positively to the news.

The Sainsbury’s share price shot up by 21% at one point before settling at a rise of 15%.

Chief executive Mike Coupe said there will be no job losses and added that the combined business will make an “even bigger contribution to the big economy”, paying more tax and employing more people. The two businesses will co-exist as separate brands.”

He promised price reductions of up to 10%, adding: “We will give customers more of what they want today, reduce the price of items and invest in better ranges.” 

Coupe will stay on as chief executive, while Asda chief executive Roger Burnley will remain in his role, but Sainsbury’s chairman David Tyler will step down.

Sainsbury’s, which also owns Argos, said the merger will create a network of more than 2,800 Sainsbury’s, Asda and Argos stores. It plans to open Argos branches in Asda stores to help sell products other than food. 

We could also see Sainsbury’s and Asda stores changing fascias in certain locations.

Andy Brian, the head of retail at Gordons law firm, 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.”

The Federation of Small Businesses warned that the combined business could use its newfound buying power to squeeze small suppliers. “Those at the top of Sainsbury’s and Asda should explain how they plan to merge these two supply chains fairly,” said chairman Mike Cherry.

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