The second largest grocery chain in the United Kingdom, Sainsbury’s, has disclosed that it is holding advanced talks with Asda, the British unit of Walmart, concerning a merger. If the merger comes to fruition the combined business will result in Tesco being overtaken as UK’s market leader in the retail sector. However since Asda and Sainsbury’s would have over 2,000 retail outlets between them, there is likely to be demands from regulators that some of the stores be disposed of.
It is understood that the move is driven by the radical changes in the retail sector which has seen traditional giants come under intense pressure from e-commerce firms that include Amazon. Discount chains that entered the scene recently and which include Lidl and Aldi are also adding to the pressure.
A combination of Asda and Sainsbury’s would capture a little over 30% of the retail market in the United Kingdom beating Tesco whose market share is 28%. Per Kantar, a retail analyst Asda and Sainsbury’s each possess around 16% of the market with the combined annual turnover estimated to be approximately 50 billion pounds.
Sainsbury’s currently owns 1,400 retail outlets and employs about 150,000 workers. Two years ago Sainsbury’s acquired Home Retail Group and Argos at a price of 1.4 billion pounds. Asda on the other hand employs around 165,000 workers and around 650 stores. While Sainsbury’s has more stores than Asda the former’s are smaller while the latter’s are bigger. Asda concentrates on the north of the country while Sainsbury’s focuses on the south.
Competition and Markets Authority
The intended merger is expected to attract intense scrutiny from the CMA – Competition and Markets Authority. Recently however the CMA gave Tesco the greenlight to acquire Booker, a wholesaler, at a price of 3.7 billion euros.
“The CMA had a reputation as being notoriously picky but the rules seem to have changed with the Tesco-Booker deal. That getting waved through must have pushed Sainsbury’s and Asda to get their thinking caps on,” Nick Bub, a retail analyst, said.
Asda was acquired by Walmart in 1999 at a price of 6.7 billion pounds after outbidding Kingfisher. Then there were fears that domestic retailers would be crushed by the U.S.-based Walmart though that has however proved not to be the case. The most recent yearly results from Asda showed that the retailer had its worst year last year since it was acquired as sales fell from 22.3 billion pounds to 21.6 billion pounds.