Walmart’s Asda to Merge With Sainsbury’s
Walmart Inc. and U.K. retailer J Sainsbury plc have revealed the pending merger of Sainsbury’s and Asda Group Ltd., Walmart’s wholly owned U.K. retail subsidiary. According to the entities involved, the deal will create one of the United Kingdom’s leading grocery, general merchandise and clothing retail groups, as well as “a more competitive, adaptable and resilient business – better placed to invest in price, quality, range and more flexible ways for customers to shop.”
Under the terms of transaction, Bentonville, Ark.-based Walmart would hold 42 percent of the share capital of the merged business. The holding will be made up of 29.9 percent of Sainsbury’s ordinary shares, with full voting rights attached, with the balance held as nonvoting shares convertible into voting shares. Further, Walmart would receive about £2.975 billion (US $4.095 billion) in cash, subject to customary closing adjustments, valuing Asda at around £7.3 billion (US $10.05 billion) on a debt-, cash- and pension-free basis. The mega-retailer would retain the Asda defined benefit pension scheme as part of the deal, as well as any ongoing defined benefit pension related obligations.
"We believe the combination offers a unique and exciting opportunity that benefits customers and colleagues,” noted Walmart President and CEO Doug McMillon. “As a company, we’ve benefited from doing business in the U.K. for many years, and we look forward to working closely with Sainsbury’s to deliver the benefits of the combination.”
“This proposed merger represents a unique and bold opportunity, consistent with our strategy of looking for new ways to drive international growth,” added 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 believe this combination will create a dynamic new retail player better positioned for even more success in a fast-changing and competitive U.K. market.”
“This is a transformational opportunity to create a new force in U.K. retail, which will be more competitive and give customers more of what they want now and in the future,” said Mike Coupe, CEO of London-based Sainsbury's. “It will create a business that is more dynamic, more adaptable, more resilient and an even bigger contributor to the U.K. economy. Having worked at Asda before Sainsbury's, I understand the culture and the businesses well and believe they are the best possible fit. This creates a great deal for customers, colleagues, suppliers and shareholders and I am excited about the opportunities ahead and what we can achieve together.”
“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,” observed Asda CEO Roger Burnley. “From my six years with Asda and 10 years with Sainsbury’s, I know firsthand that both organizations are fortunate to employ some of the most talented and customer-focused colleagues in this market, and I am excited by the opportunity of the two coming together.”
A 'Dual Brand Strategy'
The new business will operate according to a dual-brand strategy, with Asda continuing to be run from Leeds by Burnley, who will join the group operating board of the merged business, while Sainsbury’s will retain its own distinct identity.
The value unlocked by the combination is expected to be passed on to customers in the form of “significant price reductions,” according to the companies, which also cited, as further advantages of the deal, professional opportunities for more than 330,000 associates, a complementary network of 2,800-plus stores and high-traffic websites, the generation of net synergies, after price investments, across the enlarged group, of at least £500 million (US $688 million), largely comprising buying benefits, opening Sainsbury’s Argos general merchandise locations within Asda stores, and operational efficiencies; and a comprehensive range of channels and store formats encompassing supercenters, supermarkets, convenience stores and digital.
There are currently no planned Sainsbury’s or Asda store closures as a result of the transaction.
The move is seen by observers such as Fortune as a shift away from the grocery business overseas, as its international business brings in only a third of revenue although more than half of Walmart’s stores are outside the United States.
Walmart operates more than 11,700 stores under 65 banners in 28 countries and ecommerce websites, employing about 2.3 million associates worldwide.
Founded in 1949, Asda employs more than 146,000 people across the United Kingdom and selling products through a network of 584 grocery stores, 18 stand-alone fuel stations and 33 Asda Living stores as well as online. In addition to grocery and general merchandise, the company operates George, a major U.K. clothing retailer with both an in-store and online offering.