Asda Opticians included in Sainsbury's merger

On Monday, J Sainsbury Plc announced it had offered $10 billion for Asda, the British unit of Walmart Inc.

Walmart is selling Asda Group Ltd., its United Kingdom grocery subsidiary, to bigger rival J Sainsbury plc in a deal valued at £7.3 billion ($10.04 billion).

"This is a transformational opportunity to create a new force in United Kingdom retail, which will be more competitive and give customers more of what they want now and in the future. We're looking forward to helping the combined business in the future". The current industry front runner, Tesco, has almost 28%.

Mike Cherry, chairman of the Federation of Small Businesses (FSB) National, sent his warning shot: "A merger of this size will concentrate a lot of power in the hands of one giant company, and it's important that power isn't misused to coerce small suppliers into accepting unfair contracts and poor payment terms". "They've extracted a lot of knowledge out of that, and this may be an instance where at this point they may be deciding to focus on higher-growth worldwide markets given the competitive landscape in the United Kingdom", she said.

In many overseas markets, Walmart has lacked the scale to press local suppliers on price as it does in the United States.

There is still a long way to go before this ambitious deal is done.

The two companies have different cultures and appeal to different customers, with London-based Sainsbury's strong in own-brand products, and Asda, headquartered in Leeds, northern England, focused on price. In addition, any overlap between the brands would undermine their respective propositions and result in the cannibalisation of sales.

"The proposal will bring together two of the most experienced and talented management teams in retail at a time when the industry is undergoing rapid change". Of course, it is Walmart which hold the biggest shareholder position in the combined entity.

Upon completion, two Walmart representatives would join the board as non-executive directors.

According to Sainsbury's chief executive Mike Coupe, who will run the new business, both brands would be maintained. He says prices could be lowered by as much as 10 per cent. Clothing now contributes close to GBP1bn of annual sales to the group, with sales of clothing online having increased by 45%. The U.S. retailer will keep a 42 percent stake in the merged company, which includes a previous Sainsbury acquisition, general-merchandise retailer Argos. It plans to open Argos branches in Asda stores to help sell products other than food.

He described the merger news as "the Amazon protection program continues". Group sales, including Value-Added Tax, were up 9% to GBP31.7bn from GBP29.1bn a year earlier, and like-for-like sales increased 1.3%.

Sainsbury's confirmed plans on Monday morning for the merger that would create a new United Kingdom grocery giant with a share of around one-third of the United Kingdom market and combined revenues of £51 billion in 2017.

  • Zachary Reyes