U.K. grocer J Sainsbury Plc plans to buy Walmart Inc.’s Asda in a 7.3 billion-pound ($10 billion) deal that would transform the country’s supermarket industry and leave the U.S. retailer as the combined company’s biggest shareholder.
Sainsbury will pay Walmart 2.98 billion pounds in cash and 4.3 billion pounds in stock, the U.K. company said in a statement Monday detailing the terms after confirming a Bloomberg News report on the plan over the weekend. The deal would give Walmart a 42 percent stake in the merged entity, Sainsbury said.
The deal would create a supermarket giant rivaling or surpassing current U.K. market leader Tesco Plc in market share, with 51 billion pounds in sales, 2,800 stores and 330,000 employees. The combined company would gain clout with suppliers, which could help it compete against Amazon.com Inc. and keep costs in check at a time when mainstream grocers face a growing threat from discounters Lidl and Aldi.
Sainsbury said it expects synergies of at least 500 million pounds from the deal. It said it planned no store closures as a result of the combination. Sainsbury Chief Executive Officer Mike Coupe will serve as CEO, the company said.
“This is a transformational opportunity to create a new force in U.K. retail,” Coupe said in the statement. “It will create a business that is more dynamic, more adaptable, more resilient and an even bigger contributor to the U.K. economy.”
Walmart will get two board seats and will be “a long-term shareholder and partner,” Sainsbury said. The U.S. company will use its global scale and investment to support Sainsbury, according to the statement. Current U.K. market leader Tesco has used its scale to secure favorable supply deals.
Walmart, which bought Asda for 6.7 billion in 1999, said in a separate statement that it expects to record a noncash loss of about $2 billion as a result of the transaction, reflecting the current value of shares it’s receiving and current foreign-exchange rates.
The transaction builds on Sainsbury’s acquisition of general-merchandise retailer Argos for 1.4 billion pounds two years ago. While Coupe has defied some analysts’ expectations by successfully integrating Argos and wringing out cost savings, weaving together Asda with Sainsbury could present bigger challenges.
Asda is favored by shoppers on tight budgets, while Sainsbury appeals to a more affluent crowd. Sainsbury has expanded aggressively into convenience stores and is focused on the south of England around London, while Asda has more large supermarkets spread across the country’s north.
Separately, Sainsbury reported full-year pretax profit rose 1.4 percent on an adjusted basis to 589 million pounds, beating the analyst consensus of 573 million pounds.
Sainsbury also said it has started looking for a successor to Chairman David Tyler, who has been in his position for more than eight years.