J Sainsbury plc confirmed on Saturday that it is in “advanced discussions” about merging with Walmart’s Leeds-based subsidiary Asda.
It is not yet clear how the deal would be structured — but it could involve Walmart receiving new shares in Sainsbury’s and becoming the biggest Sainsbury shareholder.
The deal could be worth about £10 billion.
The UK’s supermarket sector is facing pressure to gain scale in an effort to compete with budget retailers such as Aldi and Lidl.
Walmart bought Asda, known for its low prices, for about £6.7 billion in 1999, but Asda has struggled recently against Tesco and German discounters Aldi and Lidl.
If Sainsbury’s and Asda merged, the combined group would have a bigger share of the UK grocery market than Tesco.
Tesco currently has a 27.6% market share, while Sainsbury’s has 15.8% and Asda has 15.6%.
The merger would have to be approved by the UK’s Competition and Markets Authority (CMA).
Sainsbury’s has a current stock market value of around £5.9 billion, and its current largest shareholder is The Qatar Investment Authority with a roughly 22% stake.
“J Sainsbury plc notes the speculation concerning a possible combination with Asda Group Ltd,” said Sainsbury.
“Sainsbury’s confirms that it & Walmart Inc. are in advanced discussions regarding a combination of the Sainsbury’s & Asda businesses.
“A further announcement will be made 7am Monday.”
Rothschild is advising Asda. Morgan Stanley and UBS are advising Sainsbury’s.