Sainsbury’s-Asda merger shows new business trend in UK

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LONDON: The fate of thousands of supermarket jobs is in doubt after details of Sainsbury’s shock £12 billion merger with Asda appeared. Bosses at the grocery giants initially insisted no stores would close as a result of the deal, but later admitted regulatory authorities could force them to offload stores as part of a competition probe.
Sainsbury’s has estimated a range of stores could be sold as part of its modelling ahead of the deal. This estimate, based on possible outcomes from the Competition and Markets Authority investigation, has been used by bosses to calculate that £500 million in cost savings will be produced when the companies merge. While an exact number of store closures was not divulged by the chains, numbers crunched by research firm GlobalData show that “at least” 75 stores where Sainsbury’s and Asda overlap are at risk.
Patrick O’Brien, UK retail research director at GlobalData, said: “Regulators will be looking to see how many Asda stores are in close proximity to Sainsbury’s stores. “Seventy-five Asda stores have a Sainsbury’s (excluding Locals) in the same sector. We think these 75 stores would be the absolute minimum that the CMA will want disposed of.”
Sainsbury’s insists that any stores it offloads will be done so as “trading entities”, but the future of staff at those outlets – which number anywhere from 7,500 to 10,000 – will depend on whether a buyer is found and if the the shops are then kept trading. For its part, the CMA said that the merger is “likely to be subject to review”, adding that it will assess whether the deal could reduce competition and choice for shoppers.
Details of the deal came after the companies – the UK’s number two and three supermarkets – confirmed on Monday morning that the deal will create a retail titan with a bigger share of the market than Tesco.
It would have combined revenues of £51 billion and boast a network of 2,800 Sainsbury’s, Asda and Argos stores. It will see Asda owner Walmart hold 42% of the new business and receive £2.97 billion in cash, valuing Asda at £7.3 billion.
Sainsbury’s is valued at around £5.9 billion. The combined supermarket expects to lower prices by around 10% on products customers buy regularly.
Sainsbury’s boss 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.”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.” Shares in Sainsbury’s rocketed as much as 20% as investors interpreted the deal as a boon for the firm, before settling at 15% higher. Conversely, shares in Tesco fell as much as 4% and Morrisons stock was down 3% before edging back through the day.