Sainsbury’s and Asda in ‘advanced’ talks over shock merger

Both brands are expected to be retained in £10bn deal that would create a supermarket group to rival market leader Tesco but is likely to raise competition issues.

Sainsbury's

Sainsbury’s has confirmed it is in the “advanced” stages of talks with Walmart over a merger between Asda and Sainsbury’s that could create the UK’s biggest supermarket group.

The shock deal between the UK’s second and third biggest supermarkets would give the combined entity about 31% of the supermarket sector, ahead of current market leader Tesco on 28%, according to latest Kantar Worldpanel data. The combined entity would have about 2,800 stores.

The deal, said to be worth around £10bn, will likely come under scrutiny from the Competition and Markets Authority. To be approved, it is likely store disposals would be necessary, particularly in areas where both Sainsbury’s and Asda have a presence.

It is unclear what would happen to the Sainsbury’s and Asda brands after a merger, but it is likely both would be kept. Asda has a strong value positioning and huge presence in the north of England, while Sainsbury’s is better known for its focus on quality with more of a focus on the south.

The news, which was first reported by Sky News, has been confirmed by Sainsbury’s on Twitter. The company says: “Sainsbury’s notes the speculation concerning a possible combination with Asda. Sainsbury’s confirms that it and Walmart are in advanced discussions regarding a combination of the Sainsbury’s and Asda businesses.”

A further announcement is expected Monday morning.

Richard Lim, chief executive of Retail Economics, says the deal would be “a game changer of epic proportions”.

“The potential tie-up would see the combined business take Tesco head-on. The newly formed retailer would be able to drive improved efficiency through cost-saving synergies, while the integration of Argos across a significantly larger store estate could ‘supercharge’ the non-food business,” he adds.

“Of course, the deal would have to make sense both sides of the pond while there is likely to be doubt over its legitimacy in the eyes of the Competition and Markets Authority.”

Both grocers have been suffering in the wake of the disruption in the sector over recent years. In the face of the increasing popularity of German discounters Aldi and Lidl and a resurgent Tesco and Morrisons both have seen sales slip. Despite a rally in the run-up to Christmas, Asda reported a drop in sales to £21.6bn in its last financial year, from £22.3bn a year earlier.

Sainsbury’s total grocery sales were up 2.3% in the 15 weeks to the 6 January. It no longer breaks out revenues and profits for its grocery business separately but Kantar Worldpanel latest figures show its market share dropped to 15.8% in the 12 weeks to 25 March, from 16.1% a year earlier. Asda’s shared fell from 15.8% to 15.6% over the same period.

Sainsbury’s has been in acquisition mode in recent years, buying Argos for £1.4bn in 2016 and loyalty scheme Nectar for £60m earlier this year. But it is not the only one looking to acquistions to bolster its position in the retail market. Tesco bought Booker last year in a deal that is widely thought to have led to the discussions between Sainsbury’s and Walmart.

READ MORE: Sainsbury’s hopes to emulate John Lewis and M&S with Argos bid

Yesterday (28 April), Asda appointed AMV BBDO as its lead agency in a new “ecosystem model”. The agency was previously Sainsbury’s creative agency for 35 years.

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