In a shock move that leaked over the weekend, two of the UK’s "big four" supermarkets have been plotting to create a combined business that would overtake market leader Tesco.
The deal, confirmed this morning, would mean Sainsbury's would acquire Asda from Walmart for nearly £3bn in cash, while Walmart would get a 42% stake in Sainsbury's.
While confirming the plans this morning, Sainsbury’s said the combined business would operate a "dual brand strategy" in grocery with more than 2,800 stores in the UK and Ireland.
Each retail brand would continue to be run as a separate entity, with Asda still based at its current HQ in Leeds.
Sainsbury's had been expected to announce its full-year results this Wednesday, but brought them forward to today. Like-for-like sales in the 52 weeks ending 10 March were up 1.3%, while underlying profit before tax was up 1.4% to £589m.
Those results proved irrelevant to the stock market, however: the news of the Asda deal caused Sainsbury's share price to shoot up 205 when the market opened this morning.
Price cuts
Speaking on a conference call this morning, Sainsbury's chief executive Mike Coupe said the business benefits offered by the deal meant they would be "able to sharpen the distinct offer of each brand".
The merger would give the combined business - which will still be called J Sainsbury plc - greater buying power. Coupe said both brands would aim to cut the price of everyday items by a further 10% beyond any price cuts already planned.
The Argos brand, which was acquired by Sainsbury's in 2016 and is now present in around 200 of its stores, would be introduced into Asda's stores too.
However, Asda and Sainsbury’s respective clothing brands, George and Tu, would be brought together, which Sainsbury’s said would create "an opportunity to sell both brands to a wider audience across the enlarged group".
Coupe downplayed the possibility of head office jobs - such as in marketing - being lost at either company.
Asda chief customer officer Andy Murray joined the retailer from parent company Walmart in 2016, while his Sainsbury's counterpart, Mark Given, has been marketing director since February last year.
On Friday, Asda appointed Abbott Mead Vickers BBDO to its creative account – the agency that ran advertising for Sainsbury's for 35 years until 2016.
Walmart
Coupe was challenged on whether being partly owned by Walmart could be off-putting to some of Sainsbury's existing customers.
He said: "When you listen to customers, they understand what they both [the brands] stand for, and this is about sharpening the proposition of both companies. I don’t think people will see the association with Walmart as anything but a good thing."
Speaking on the call, Walmart's international chief executive Judith McKenna said the deal would be mutually beneficial for Sainsbury's and Walmart.
It would allow Sainsbury's access to the technologies being developed by Walmart in the US - but she also added: "Synergies aren’t just one way – we’re particularly interested in the Argos group and what that could bring around the world." This could mean introducing Argos to Walmart stores in other countries, she said.
The merger is expected to trigger an investigation by the Competition and Markets Authority due to competition concerns in the UK supermarket sector.
Both supermarket chief executives pointed out as part of their announcements this morning that they have each worked at the other’s company.
Coupe added: "This is a transformation 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."
Roger Burnley, Asda’s chief executive, who had previously worked at Sainsbury’s for 10 years, added: "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."
