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Sainsbury's and Asda agree potential merger deal

Sainsbury’s has announced that it has agreed terms with Walmart for its proposed merger with the Asda supermarket chain.

FOOD & DRINK

Sainsbury's and Asda agree potential merger deal

In a statement, Sainsbury’s said the combined business would create a “dynamic new player” in the grocery sector and would mean that both supermarkets would be better able to invest in price, quality, ranges and technology.

Sainsbury’s said both brands would be maintained following the merger, each with distinctive customer propositions, and that it did not plan to close any Sainsbury’s or Asda stores.

The combination would result in Walmart holding 42% of the issued share capital of the combined business and receiving £2.975 billion of cash, subject to customary completion adjustments. This would value Asda at approximately £7.3 billion on a debt-free, cash-free and pension-free basis.

The merger would combine a network of more than 2,800 Sainsbury's, Asda and Argos stores to create one of the UK's leading grocery, general merchandise and clothing retail groups, with revenue of around £51 billion for 2017.

Liberal Democrat leader Sir Vince Cable, however, has called for the Competitions and Market Authority to investigate any deal and said the organisation’s head, Andrew Tyrie, should “get tough with monopolies” and “force divestment” if there was too much of a local dominance.

Sainsbury’s said the merger would generate net EBITDA synergies, post investments in price, across the enlarged group of at least £500 million. These synergies would be comprised largely of buying benefits, the opening of Argos concessions in Asda stores, and operational efficiencies.

The merged business would be led by Sainsbury’s chief executive Mike Coupe who said the two companies are “the best possible fit”.

David Tyler, chairman of Sainsbury's, added: "We believe that the combination of Sainsbury's and Asda will create substantial value for our shareholders and will be excellent news for our customers and our colleagues.

“As one of the largest employers in the country, the combined business will become an even greater contributor to the British economy. The proposal will bring together two of the most experienced and talented management teams in retail at a time when the industry is undergoing rapid change”
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