Walmart's Asda to Merge With Sainsbury's

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Sainsbury's has agreed to buy Walmart's Asda for about £7.3 billion (S$13.3 billion) to create Britain's biggest supermarket group by market share, overtaking longstanding industry leader Tesco. Shadow Business Secretary Rebecca Long-Bailey told the House of Commons: "It's clear that a duopoly of the big supermarkets - Tesco, Asda and Sainsbury's - will now emerge, providing never-before-seen bargaining power".

The deal is yet to be rubber stamped by the Sainsbury's board, and the Competition and Markets Authority (CMA) has already announced plans to review the merger. The supermarkets said the union, which would result in a group with £51 billion (€58 billion) of sales, would cut costs for consumers.

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.

Sainsbury's CEO Mike Coupe, who used to work for Asda, Chairman David Tyler and finance chief Kevin O'Byrne will retain their positions in the merged company.

However, given that the deal is not expected to be completed until autumn 2019, is it all a bit too soon for such confidence? Sainsbury's is now valued at £5.9bn and Asda at £7.3bn.

The two have different cultures and appeal to different customers, with London-based Sainsbury's strong in own-brand products, and Asda, headquartered in Leeds, northern England, focused on price.

Three sources with knowledge of the situation said Walmart would take a minority stake in the combined business.

Analyst Bruno Monteyne at Bernstein added: "This is a bold gamble". He became its trading director before departing in 2001, following Walmart's 6.7 billion pound takeover of the British supermarket company in 1999. This deal ties Walmart to the stake for four years, but, after two of those years, it can reduce its stake to just under 30 percent.

The man who is set to lead the new merged behemoth, Sainsbury's CEO Mike Coupe, has said that there will be no store closures and has all but promised consumers that there will be an overall reduction in prices - some by up to 10%. Walmart will have a 42% stake in the combined companies.

The Qatar Investment Authority, which has tried to buy Sainsbury's in the past, is now the supermarket group's biggest shareholder with a 22% stake.

Sainsbury's shares jumped as much as 21 percent on the London Stock Exchange to 327.1 pence, their highest since July 2014 and were on course for their biggest-ever daily gain, while shares in rivals Tesco and Morrisons fell.

Sainsbury's also reported its full-year results, showing a first rise in profit in four years and expressed confidence in meeting analysts' profit forecasts for 2018-19.

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