Sainsbury’s Buys Asda for £7.3bn in cash and shares

Sainsbury’s has agreed to buy Walmart’s Leeds-based subsidiary Asda for about £7.3 billion in cash and shares to create the UK’s largest supermarket group by market share and overtake Tesco.

Walmart paid £6.7 billion for Asda in 1999.

This merger is likely to be reviewed by the UK’s Competition and Markets Authority (CMA).

“The combination will result in Walmart holding 42 per cent of the issued share capital of the combined business and receiving £2.975 billion of cash (subject to customary completion adjustments), valuing Asda at approximately £7.3 billion on a debt-free, cash-free and pension-free basis,” said Sainsbury’s.

“At the time of completion of the combination, Walmart will not hold more than 29.9 per cent of the total voting rights in the combined business.”

The Qatar Investment Authority, currently the largest shareholder in Sainsbury’s with a 22% stake, said it supported the deal.

After a two-year lock-up period, Walmart is allowed to reduce its stake in the combined group to 29.9% and after four years it could exit completely.

Sainsbury’s said the combined business would have combined revenues of £51 billion for 2017.

“We expect to lower prices by c.10 per cent on many of the products customers buy regularly,” said Sainsbury’s.

“Walmart will be a long-term shareholder and partner and will leverage its global scale and investment to support the combined business.

“Upon completion, two Walmart representatives will join the board of the combined business as non-executive directors.

“The combined business will be chaired by the Sainsbury’s chairman and led by the Sainsbury’s CEO and CFO.

“Asda will continue to be run from Leeds with its own CEO, who will join the group operating board of the combined business.”

Sainsbury’s CEO Mike Coupe said: “This is a transformational opportunity to create a new force in UK retail, which will be more competitive and give customers more of what they want now and in the future.

“It will create a business that is more dynamic, more adaptable, more resilient and an even bigger contributor to the UK 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.”

Walmart International CEO Judith McKenna, said: “This proposed merger represents a unique and bold opportunity, consistent with our strategy of looking for new ways to drive international growth.

“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 UK market.

“It will unlock value for both customers and shareholders, but, at the same time, it’s the colleagues at Asda who make the difference, and this merger will provide them with broader opportunities within the retail group.

“We are very much looking forward to working closely with Sainsbury’s to deliver the benefits of the combined business.”

Asda CEO Roger Burnley said: “The combination of Asda and Sainsbury’s into a single retailing group will be great news for Asda customers, allowing us to deliver even lower prices in store and even greater choice.

“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.

“From my six years with Asda and ten years with Sainsbury’s, I know first hand that both organisations 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.”