J Sainsbury Plc has agreed to buy Walmart’s British unit Asda for $10 billion. The deal will create a grocery powerhouse in the UK and overtake market share from UK’s largest grocer, Tesco. J Sainsbury operates the Sainsbury’s stores in that country.
According to news reports, Mike Coupe, Sainsbury’s chief executive, who used to work for Asda, will lead the new company. Walmart will hold 42 per cent of the share capital of the combined business and the two stores will continue to operate under distinctive brands.
In a BBC report, Coupe says the deal would not lead to store closures or job losses in stores–estimated at more than 2,800–although he did say it was possible competition authorities would force some stores to be sold to allow the proposed merger to go through.
“There’s been a bit of commentary over the weekend where people have been alluding to the fact that the only way of making this happen is by closing stores – that is not true.”
The proposed merger is “consistent with our strategy of looking for new ways to drive international growth,” said Judith McKenna, CEO of Walmart’s international business, in the statement.
According to a Reuters report, analysts said the deal was a bet that recent changes in the retail industry–including the rise in online shopping, hard discounters and Tesco’s purchase of Booker–would ease any opposition from competition regulators.
Bernstein’s Bruno Monteyne said that if regulators included discounters–which sell a much smaller range of products–in their assessment of major competitors for the new group, it might only have to sell about 8 per cent of stores.
If the deal is approved by Britain’s Competition and Markets Authority, Sainsbury’s and the similarly-sized Asda would overtake Tesco with a combined market share of 31.4 per cent versus Tesco’s 27.6 per cent, according to the latest data from market researcher Kantar Worldpanel.