Sainsbury’s (SBRY) share price soars after confirming Asda merger proposal will lead to price cuts of around 10 per cent
Sainsbury’s this morning provided more detail on its plans to merge with Asda, after reporting a return to growth with full-year profit before tax up 1.4 per cent to £589m.
Shares in the supermarket soared in early trading after the tie-up proposal was confirmed, up more than 16 per cent in early trading.
The combination will result in Asda owner Walmart holding 42 per cent of the issued share capital of the combined business and receiving nearly £3bn of cash, valuing Asda at £7.3bn.
The firms said the new business would mean lower prices by around 10 per cent on “many of the products customers buy regularly.”
Sainsbury’s said the tie-up would create “a dynamic new player in UK retail” and would result in a more competitive and resilient business that will be better able to “invest in price, quality, range and the technology to create more flexible ways for customers to shop.”
Read more: Sainsbury’s takeover talks with Asda prompt competition concerns
The group would have combined revenues of around £51bn for 2017, and generate net earnings before interest, tax, depreciation and amortisation synergies of at least £500m.
Walmart would be a long-term shareholder and partner, with Sainsbury’s saying the US firm would leverage its global scale to help support the new business. Two Walmart representatives will join the board as non-executive directors.
The merged firm would have Sainsbury’s chairman David Tyler as chair, and be led by the supermarket’s chief executive Mike Coupe and chief financial officer Kevin O’Byrne.
Mike Coupe, chief executive of Sainsbury’s, 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.
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.
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.
The detailed statement this morning followed news of the merger that broke over the weekend, and said a tie-up would offer more opportunities for over 330,000 colleagues “at all levels”.
Coupe has told the BBC Today’s programme that there will be no store closures and job losses if the deal goes ahead.
The mega-merger that would see Tesco dethroned from holding the greatest grocery market share, is likely to need the green light from the Competition and Markets Authority.
Liberal Democrat leader Sir Vince Cable has already called for the CMA to investigate the plans, saying the watchdog must “focus on customers”.
Read more: Sainsbury’s and Asda mega-merger reignites store wars