NEWS
28/04/2018 13:54 BST | Updated 30/04/2018 10:28 BST

Sainsbury's Asda Merger: Supermarkets In 'Advanced Talks' Over Tie-Up

Analysts react to possible 'game-changer' deal for UK grocery market.

Sainsbury’s and Asda are in “advanced discussions” regarding a possible merger to create a group of up to 2,800 stores.

The move would, if approved, give the new combined company control of just under 30% of the UK grocery sector and stun rivals including Tesco and Morrisons.

It has been reported that the brand names would remain, at least initially.

Sainsbury’s confirmed it had held “advanced discussions” with Walmart, Asda’s American owner, about combining its businesses and that a full statement will be issued on Monday morning.

Any merger would likely prompt a review from the Competition and Markets Authority (CMA), which regulates major business deals to ensure fairness.

The CMA would not comment on whether it had been informed of talks between Asda, Walmart, and J Sainsbury plc.

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Unions warned they would oppose job losses that could result from a potential merger 

The size of the £10bn tie-up, including combined turnover and market share, is likely to prompt a CMA review.

Mergers of Britain’s top supermarkets, particularly the Big Four - Tesco, Asda, Sainsbury’s and Morrisons - have been unthinkable within the industry in the past.

But the CMA’s recent approval of a deal allowing Tesco to buy the Booker cash and carry empire changed retailers’ outlook.

A CMA source told HuffPost UK that the watchdog would need to consider whether any deal had an international element and if so, proposals could be probed by the European Commission.

Asda and J Sainsbury employ a combined workforce of 295,000 across Britain.

The Usdaw union, which represents shop workers, said it was seeking “urgent talks” with both chains to protect jobs. 

Usdaw national officer Joanne McGuinness said: “We will be seeking urgent meetings with the businesses to get more detail on what a possible merger will involve.

“Our priorities will be to protect our members and ensure any deal between the retailers does not impact on their jobs or incomes.”

Tim Roache, GMB general secretary, said: “Our first priority is to safeguard the job of every single Asda member, both in stores and in distribution. We are demanding an urgent meeting with Asda to get the answers and assurances our members need and deserve.

“GMB will be making sure the voices of supermarket workers are not lost amidst all the talk of mergers and acquisitions. We should never forget these companies’ empires are built upon the hard work of their employees.

“Rest assured, we will be exploring every available legal avenue to protect our members’ jobs.”

J Sainsbury bought high street retailers Argos and Habitat two years ago, adding 800 stores to its portfolio.

In some towns, such as Keighley, West Yorks, Sainsbury’s and Asda have stores just metres apart.

But the brands have different geographical strengths, with Asda seen as stronger in the north of England and Sainsbury’s dominant in the south.

Both supermarkets have struggled to tackle fierce competition from German discounters Lidl and Aldi.

And the brands have boardroom connections too. 

Roger Burnley, Asda’s President and CEO, was Sainsbury’s retail and operations director until early 2016.

Analysts have said if the deal were to happen it would likely produce significant cost savings for the new combined company.

‘Game-changer’

Richard Lim, chief executive of consultancy Retail Economics, said: “The first reaction is that there is a significant element of doubt about whether this proposed merger would happen and be approved by the regulator.

“If this was approved, it would be a game-changer in the grocery market of the UK.

“The combined market share would be just under 30 percent using latest data.

“It’s likely they would look to drive efficiency through cost savings and the integration of Argos could potentially supercharge the non-food side of the business because they would have a significantly bigger store estate.

“These can be both stores as well as online distribution centres.

“But until the deal’s done, it’s not done. There are many, many hurdles and the deal has to work for both sides of the pond.”

And politicians have been quick to call for the CMA to investigate the proposals.

Former business secretary and now Lib Dem leader Sir Vince Cable said the potential merger could lead to “the creation of even more concentrated local monopolies”.

Alex Neill, managing director of Which? Home Products and Services, said: “The competition regulator will need to scrutinise this proposed merger carefully to ensure there are no negative consequences for consumers.

“Sainsbury’s and Asda have both fallen behind the pack recently in this trusted sector - with both finishing in the bottom three of our annual supermarket survey as rivals like Aldi and Lidl have done a better job of giving shoppers what they want.”