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Sainsbury’s confirms Asda merger

Sainsbury’s has confirmed it has agreed terms with Asda owner Walmart to buy a majority stake in its supermarket rival, to create one of the UK’s largest grocery and clothing groups with a combined revenue of £51bn.

The supermarkets said the merger would allow the businesses to be more competitive in a difficult UK market.

In a joint statement they said: “The retail sector is going through significant and rapid change, as customer shopping habits continue to evolve. This has led to increased competition across grocery, general merchandise and clothing, as customers seek ever greater value, choice and convenience. Bringing Sainsbury’s and Asda together will result in a more competitive and more resilient business that will be better able to invest in price, quality, range and the technology to create more flexible ways for customers to shop.”

As part of the deal Walmart will hold 42% of the issued share capital of the combined business and receive £2.9bn of cash, valuing Asda at approximately £7.3bn. When the deal completes Walmart will not hold more than 29.9% of the total voting rights in the combined business.

The businesses intend to maintain both individual brands but combine a joint network of more than 2,800 Sainsbury’s, Argos and Asda stores and websites.

The combined business expects to lower prices by 10% on many products customers buy regularly.

It said it has identified £500m worth of synergies comprised £350m to be generated predominantly from access to “better harmonised buying terms”; £75m  from property, including opportunities for Argos to open within Asda stores; and £75m from operational cost efficiencies. 

It said there were no planned store closures for Sainsbury’s or Asda at present and added the deal would create “significant opportunities for suppliers” to develop differentiated product ranges, become more streamlined and to grow their businesses.

The new business will be chaired by the Sainsbury’s chairman David Tyler and led by the Sainsbury’s CEO Mike Coupe and CFO Kevin O’Byrne. Asda will continue to be run from Leeds with its own CEO, Roger Burnley, who will join the group operating board of the combined business.

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

Tyler said: “We believe that the combination of Sainsbury’s and Asda will create substantial value for our shareholders and will be excellent news for our customers and our colleagues. As one of the largest employers in the country, the combined business will become an even greater contributor to the British economy. The proposal will bring together two of the most experienced and talented management teams in retail at a time when the industry is undergoing rapid change. We welcome Walmart as a significant shareholder and look forward to working closely with them.”

Coupe added: “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.”

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.”

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