Walmart in Talks to Merge U.K. Asda Unit With British Grocer Sainsbury -- Update
April 28 2018 - 11:37AM
Dow Jones News
By Ben Dummett and Saabira Chaudhuri
LONDON -- Walmart Inc. is in advanced talks to merge its U.K.
grocery unit Asda Group Ltd. with rival J Sainsbury PLC, the latest
industry move to add scale in the face of aggressive
discounters.
In a brief statement Saturday, Sainsbury, which has a market
value of $8.16 billion, confirmed the tie-up talks and said that it
would make a further announcement Monday that is expected to
outline the details of any transaction.
The talks come after rival grocer Tesco PLC agreed last year to
acquire Booker Group PLC, the country's largest food wholesaler,
for GBP3.7 billion ($5.1 billion), catapulting it from the U.K.'s
biggest supermarket chain to its largest food business and opening
up new avenues of revenue.
Like that deal, any merger between Asda and Sainsbury would
likely draw antitrust scrutiny amid worries that consolidation
could give the combined entity greater power to maintain or raise
prices for food.
Together, Sainsbury and Asda would have a market share of over
30%, surpassing Tesco, according to Kantar Worldpanel.
Because of steep competition and large numbers of online
shoppers, the U.K. grocery market is billed by many retail
executives as the world's toughest.
In recent years, Tesco, Sainsbury and rival Wm Morrison
Supermarkets PLC poured money into their operations, but Walmart
held back. It tapped a string of Asda's most senior executives,
including its operations chief, e-commerce head and two chief
financial officers, and put them in positions in its U.S. business,
weakening Asda's talent pool, say analysts.
Walmart agreed to acquire Asda in 1999 for about $10.8 billion,
as part of the U.S. retail giant's goal at the time to double its
international operations.
The U.K., where Walmart operates about 600 Asda stores, is the
Bentonville, Ark., retailer's biggest overseas market by revenue.
But it has also been the most problematic as sales have been
hammered by competition from German discounters Aldi and Lidl. The
pair have kept prices low by prioritizing speedy store deliveries,
efficiency and high turnover at the expense of breadth of offerings
and customer service. As part of that push, Aldi and Lidl take
daily deliveries of a slim range of mainly private-label products,
often with the look and feel of popular, branded items.
Walmart executives have indicated since October that though Asda
isn't hugely profitable, they see it as a good source of cash flow.
Still in February, Walmart Chief Executive Doug McMillon said that
he sees the U.K. market as similar to the retailer's home market in
North America -- "largely built out."
For its part, Sainsbury only recently digested its GBP1.4
billion takeover of Argos owner Home Retail Group in 2016. Argos,
which sells everything from irons to furniture, has a strong
distribution network that Sainsbury has been leveraging to compete
with Amazon.
Although Sainsbury typically markets itself to slightly
wealthier shoppers, the chain, like its peers, has struggled to
compete against Aldi and Lidl. In March, it said it was cutting the
prices of 930 everyday grocery products in its stores and
online.
The talks between Walmart and Sainsbury were first reported by
Bloomberg.
--Sarah Nassauer contributed to this article.
Write to Ben Dummett at ben.dummett@wsj.com and Saabira
Chaudhuri at saabira.chaudhuri@wsj.com
(END) Dow Jones Newswires
April 28, 2018 11:22 ET (15:22 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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