The deal will create Britain’s biggest supermarket chain with combined revenues of around £51b.
The statement reads: “The retail sector is going through significant and rapid change, as customer shopping habits continue to evolve. This has led to increased competition across grocery, general merchandise and clothing, as customers seek ever greater value, choice and convenience.”
“Bringing Sainsbury’s and Asda together will result in a more competitive and more 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.”
Although it’s billed as a merger, Sainsbury’s is in the box seat. The deal values Asda at roughly £7.3b, and Walmart (Asda’s current owner) will end up owning 42% of the combined business. Walmart is also receiving £2.975b in cash as part of the deal.
Sainsbury’s shares jumped 20% following the announcement, while shares in rival supermarkets are falling in early trading. Morrisons, currently Britain’s fourth largest supermarket, are down 3% at the bottom of the FTSE 100 leaderboard. Tesco is close behind, down 2.5%.
While both companies are promising to cut prices on popular products by up to 10%, if their merger goes through, Britain’s unions are demanding guarantees for workers at Asda.
Tim Roache, general secretary of the GMB, fears that staff at the supermarket will pay the price as Sainsbury pursues the £500m of cost savings promised this morning.
He commented: “Hundreds of thousands of workers stand to be affected, and all know such announcements tend to be followed by management speak like ‘rationalisation’ in the name of ‘efficiency’. What that usually means is job losses or cuts to pay, terms and conditions which would be wholly unacceptable. Not least because Asda workers have already voluntarily agreed to change their contracts to be more flexible in order to play their part and help their employer be more profitable.”
“It is quite right to be asking now in whose interests this proposed merger is being tabled. Is it workers and customers or the shareholders and speculators not happy with the hundreds of millions they already make in a year?”