Sainsbury's and Asda tie-up could create UK's biggest supermarket chain

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The deal with Sainsbury's is "consistent with our strategy of looking for new ways to drive worldwide growth", Judith McKenna, CEO of Walmart's global business, said in a statement.

Early research has revealed that while nearly half Asda stores had a Sainsbury's in the same postal district (the first half of the postcode, known as the "outcode"), many of these were Sainsbury's Local stores, which arguably could be excluded as they serve a different shopper mission.

That's the lesson for Mike Coupe after the chief executive officer of British grocer J Sainsbury was caught singing "We're in the Money", on camera as he prepared for a television interview.

Sainsbury has a market value of £5.9 billion ($8.1 billion) with a market share of about 15.8%, while Asda, Walmart's subsidiary, has a market share of 15.6%. This will enable the Sainsbury's and Asda brands to "sharpen their distinctive customer propositions and attract new customers", management said.

The proposed merger is "consistent with our strategy of looking for new ways to drive global growth", Judith McKenna, CEO of Walmart's worldwide business, said in the statement.

Speaking to the BBC, Mr Coupe said divestments were possible, but there were no plans to close shops and customers would be unaffected.

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The move highlights the competition in Britain's grocery market as discounters take market share from traditional chains such as Sainsbury's and Tesco. But the CMA and its predecessors haven't looked at a supermarket chain buying a direct rival since Morrison's purchase in 2003, in a report that opposed Asda, Sainsbury or Tesco from buying Safeway because of danger of eliminating competition.

"The merger, if successful, creates a retail giant in the United Kingdom with enough procurement and distribution scale to dominate food retail and challenge Amazon in non-food", said Berenberg analysts. Walmart (which now owns Asda) will retain a 42% holding in the combination.

After a two-year lock-up period, Walmart is allowed to reduce its stake in the combined group to 29.9 per cent, and after four years could exit completely.

The combination would create a network of more than 2800 Sainsbury's, Asda and Argos stores, plus several of the UK's most popular retail websites. "Asda will continue to be Asda, but by coming together with Sainsbury's, supported by Walmart, we can further accelerate our existing strategy and make our offer even more compelling and competitive".

According to a statement from Moody's Lead Retail Analyst Charlie O'Shea emailed to Retail Dive, if the deal is completed along the terms announced it will be credit positive to Walmart. With the recent addition of Amazon in the market through last summer's Whole Foods acquisition, the industry has been in a constant battle to win customers by slashing prices.

With the newly-combined company, Sainsbury and Asda have found £500 million of cost savings by comparing sourcing books and taking on lower prices for comparable products, the news source shares.

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