UK grocer Sainsbury's to buy Walmart's Asda for £7bn

If approved, deal would create a supermarket giant rivalling or surpassing current UK market leader Tesco in market share

Sainsbury's intends to buy Walmart's Asda. The UK competition commission will have to agree the deal first. Sang Tan / AP Photo

UK grocer J Sainsbury plans to buy Walmart’s Asda in a £7.3 billion (Dh36.91bn) deal that would transform the country’s supermarket industry and leave the US retailer as the combined company’s biggest shareholder.

Sainsbury will pay Walmart £2.98 bn in cash and £4.3bn in stock, the UK company said on Monday, detailing the terms after confirming a Bloomberg News report on the plan over the weekend. The deal would give Walmart a 42 per cent stake in the merged entity, Sainsbury said.

The deal would create a supermarket giant rivalling or surpassing current UK market leader Tesco in market share, with £51bn in sales, 2,800 stores and 330,000 employees. The combined company would gain clout with suppliers, which could help it compete against Amazon.com and keep costs in check at a time when mainstream grocers face a growing threat from discounters Lidl and Aldi.

Sainsbury said it expected synergies of at least £500 million from the deal. It said it planned no store closures as a result of the combination. Sainsbury chief executive Mike Coupe will serve as chief executive, the company said.

“This is a transformational opportunity to create a new force in UK retail,” Mr Coupe said. “It will create a business that is more dynamic, more adaptable, more resilient and an even bigger contributor to the UK economy.”

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Walmart will get two board seats and will be “a long-term shareholder and partner”, Sainsbury said. The US company will use its global scale and investment to support Sainsbury, according to the statement. Current UK market leader Tesco has used its scale to secure favourable supply deals.

Walmart, which bought Asda for £6.7bn in 1999, said in a separate statement that it expected to record a non-cash loss of about $2bn as a result of the transaction, reflecting the current value of shares it’s receiving and current foreign-exchange rates.

The transaction builds on Sainsbury’s acquisition of general-merchandise retailer Argos for £1.4bn two years ago. While Mr Coupe has defied some analysts’ expectations by successfully integrating Argos and wringing out cost savings, weaving together Asda with Sainsbury could present bigger challenges.

Asda is favoured by shoppers on tight budgets, while Sainsbury appeals to a more affluent crowd. Sainsbury has expanded aggressively into convenience stores and is focused on the south of England around London, while Asda has more large supermarkets spread across the country’s north.

Separately, Sainsbury reported full-year pretax profit rose 1.4 per cent on an adjusted basis to £589m, beating the analyst consensus of £573m.

Sainsbury also said it has started looking for a successor to chairman David Tyler, who has been in his position for more than eight years.