U.K. food retail is set for a massive shake up as J Sainsbury and Asda plan to merge, creating a new giant for the supermarket sector. J Sainsbury and Walmart‘s Asda are joining forces in a deal worth £7.3 billion ($10 billion), they confirmed Monday morning.
If approved by regulators, it will surpass Tesco which is the largest retailer in the U.K. with 25 percent of market share. The two companies merging are the second and the third largest retailers, currently. Given the size of the two companies, regulators will have to assess whether their merger would not create market disruptions.
ASDA owned by Walmart merging with Sainsbury to give a hard brawl to UK biggest retail chain TESCO
Kevin O’Byrne, the chief financial officer of Sainsbury’s, told CNBC’s “Squawk Box Europe”: “We think this is a great combination, creating a very dynamic player in the retail market.”
“The market has changed beyond recognition in the last 10 years and even in the last three years, the discounters have doubled their share, we’ve got new entrance coming into the market that just couldn’t exist a few years ago,” O’Byrne told CNBC Monday morning.
The merger will keep both the Sainsbury’s and Asda brands. The firms said in a statement that Walmart, which owns Asda, will have 42 percent of the issued share capital of the combined business and will not hold more than 29.9 percent of the total voting rights.
They also said that the combined business will generate at least £500 million ($688.62 million) in cost savings and lead to a reduction in prices of about 10 percent. Shares of J Sainsbury jumped 20 percent as markets opened in Europe Monday morning.
According to Bruno Monteyne, European food retail analyst at Bernstein, “scale remains the most important factor in food retail profitability.”