Walmart to Sell British Unit Asda to U.K. Rival Sainsbury -- Update
April 30 2018 - 3:47AM
Dow Jones News
By Saabira Chaudhuri
LONDON -- Walmart Inc. on Monday said it would sell its British
arm Asda Group Ltd. to rival J Sainsbury PLC, a deal that values
the chain at about $7.3 billion ($10.1 billion) and, if successful,
would create the U.K.'s largest grocer.
Walmart will hold a 42% stake in the combined company and get
almost GBP3 billion in cash. The Bentonville, Ark. company will
have voting rights up to 29.9%.
If cleared by antitrust regulators, the move would clear the
path for a new grocery behemoth that would help both companies
better compete against a resurgent Tesco PLC, Amazon.com Inc. --
which has been pushing further into online groceries -- and
increasingly popular discounters Aldi and Lidl.
For Walmart the move is part of a broader shift to form joint
ventures in competitive markets and focus investments in areas
executives think will provide growth. It is also in talks to sell
its controlling stake in its Brazilian operations and in advanced
discussions to buy a majority stake in Flipkart Group, a homegrown
startup that has become India's largest e-commerce company.
Stiff competition and large numbers of online shoppers means the
U.K. grocery market is billed by many retail executives as the
world's toughest. In response, the U.K.'s market leaders have been
moving to bulk up with Tesco last month acquiring Booker Group PLC,
the country's largest food wholesaler, for GBP3.7 billion, becoming
the U.K.'s largest food business.
Sainsburys, whose shares rose about 20% in early trading Monday,
said the combined company would have total sales of around GBP51
billion and more than 2,800 stores. It also said the new business
would lower prices by about 10% on "many" everyday products.
Despite this, the proposed deal will likely draw major antitrust
scrutiny amid worries that consolidation could give the combined
entity greater power to maintain or raise prices for food. Analysts
on Monday cited the deal's high regulatory risk noting that it will
be a lengthy process.
Sainsbury buying Asda "would represent a remarkable step-up in
U.K. industry consolidation, if cleared," said Jefferies analyst
James Grzinic, adding that the two companies "are willing to accept
very punishing conditions to secure an approval."
The combined company would have a value of about GBP12 billion,
according to Bernstein analysts, while its grocery market share
would be 27% according to Kantar.
It is expected to add at least GBP500 million to earnings before
interest, taxes, depreciation and amortization as the companies
benefit from bulk buying and the opening of Argos businesses in
Asda stores. Sainsbury bought Argos owner Home Retail Group in 2016
for GBP1.4 billion.
The companies plan to keep both the Sainsbury and Asda brands,
which have different market positions, the latter being more
upmarket. It will be led by Sainsbury's chairman and chief
executive, while Asda's CEO will join the board of the combined
business. Two Walmart executives will also join the board.
Sainsbury said it doesn't expect to close any of its stores or any
Asda stores as a result of the deal.
For the year to March 10, Sainsbury reported profit fell 18% to
GBP309 million weighed down by one-time costs although underlying
pretax profit climbed 1.4%. Revenue including fuel but excluding
value-added-tax climbed to GBP28.46 billion from GBP26.22
billion.
Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com
(END) Dow Jones Newswires
April 30, 2018 03:32 ET (07:32 GMT)
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