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Walmart and Sainsbury’s Announce Merger of Sainsbury’s & Asda

\"\"Walmart Inc. and J Sainsbury plc today announced the combination of Sainsbury’s and Asda Group Limited, Walmart’s wholly owned UK retail subsidiary

The Combined Business will create a dynamic new player in UK retail with an outstanding breadth of products, delivered through multiple channels. Enhanced scale and a strengthened balance sheet will deliver a great deal for customers, colleagues, suppliers and shareholders of both businesses. 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.

Commenting on the Combination, David Tyler, Chairman of Sainsbury\’s, said: “We believe that the combination of Sainsbury\’s and Asda will create substantial value for our shareholders and will be excellent news for our customers and our colleagues. As one of the largest employers in the country, the combined business will become an even greater contributor to the British economy. 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. We welcome Walmart as a significant shareholder and look forward to working closely with them.”

The Combination will result in Walmart holding 42% of the issued share capital of the Combined Business and receiving £2.975 billion of cash (subject to customary completion adjustments), valuing Asda at approximately £7.3 billion on a debt-free, cash-free and pension-free basis. At the time of completion of the Combination, Walmart will not hold more than 29.9% of the total voting rights in the Combined Business4.

The Combination will:

  • Create one of the UK’s leading grocery, general merchandise and clothing retail groups, with combined revenues of c.£51 billion for 20175
  • Maintain both the Sainsbury\’s and Asda brands and enable them to sharpen their distinctive customer propositions and attract new customers
  • Combine a complementary network of more than 2,800 Sainsbury\’s, Asda and Argos stores and several of the UK’s most visited retail websites, to create greater choice for customers through more store formats and channels, with a combined 47 million customer transactions per week
  • Enable investment in areas that will benefit customers the most: price, quality, range and creating more flexible ways to shop in stores and through digital channels, across Sainsbury\’s, Asda and Argos. Potentially lower prices by 10% on many of the products customers buy regularly
  • Generate net EBITDA synergies, post investments in price, across the enlarged group of at least £500 million. These synergies are comprised largely of buying benefits, opening Argos in Asda stores and operational efficiencies. There are no planned Sainsbury\’s or Asda store closures as a result of the Combination
  • Deliver benefits to the Combined Business through a close relationship with Walmart, both as a strategic partner and long-term shareholder, allowing the business to share knowledge and technology developments between Walmart, Sainsbury\’s and Asda
  • Offer more opportunities for over 330,000 colleagues at all levels within the enlarged group, drawing on the shared values and heritage of both businesses
  • Create significant opportunities for suppliers to develop differentiated product ranges, become more streamlined and to grow their businesses as the Combined Business grows
  • Deliver substantial value creation for shareholders of Sainsbury\’s, through double digit EPS accretion and low double digit ROIC by the second full financial year post-completion
  • Reduce Sainsbury’s lease-adjusted leverage, benefiting from Asda’s high freehold property ownership6 and pension-free balance sheet, protecting the interests of hundreds of thousands of Sainsbury\’s and Asda pension holders
  • Be highly cash generative, enabling a faster de-leveraging profile. The Combined Business is expected to have an investment grade credit profile on completion

Enabling investment in areas that will benefit customers the most: price, quality, range and creating more flexible ways to shop, across Sainsbury’s, Asda and Argos. It is expected that value will be passed on to customers through significant price reductions

Commenting on the Combination, Roger Burnley, Chief Executive Officer of Asda, said:

“The combination of Asda and Sainsbury\’s into a single retailing group will be great news for Asda customers, allowing us to deliver even lower prices in store and even greater choice. 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.

From my six years with Asda and ten years with Sainsbury\’s, I know first hand that both organisations are fortunate to employ some of the most talented and customer-focused colleagues in this market and I am excited by the opportunity of the two coming together.”

Maintaining both the Sainsbury’s and Asda brands and enabling them to sharpen their distinct customer propositions and attract new customers

Offering more opportunities for over 330,000 colleagues at all levels within the enlarged and more resilient group, drawing on the shared values and heritage of both businesses

Combining a complementary network of more than 2,800 Sainsbury’s, Asda and Argos stores and several of the UK’s most visited retail websites to create greater choice for customers through more store formats and channels, with a combined 47 million customer transactions per week

Generating net synergies, post price investments, across the enlarged group of at least £500 million. These are comprised largely of buying benefits, opening Argos in Asda stores and operational efficiencies. There are no planned Sainsbury’s or Asda store closures as a result of the Combination

A comprehensive range of channels and formats across supercenters, superstores, supermarkets, convenience stores and digital

Based on the current deal terms, Walmart expects to recognize a non-cash loss of approximately $2 billion, which is based on the current value of shares to be received and current foreign exchange rates. This estimate could fluctuate significantly due to changes in the fair value of the equity consideration to be received and changes in currency exchange rates.

Walmart will be a long-term shareholder and partner and will leverage its global scale and investment to support the Combined Business. Upon completion, two Walmart representatives will join the Board of the Combined Business as non-executive directors.

The Combined Business will be chaired by the Sainsbury\’s Chairman and led by the Sainsbury\’s CEO and CFO. Asda will continue to be run from Leeds with its own CEO, who will join the Group Operating Board of the Combined Business.

The Combined Business will be run by the best leaders from both businesses, supported by highly capable Sainsbury\’s and Asda colleagues.

Commenting on the Combination, Mike Coupe, Chief Executive Officer of Sainsbury\’s, said:

“This is a transformational opportunity to create a new force in UK retail, which will be more competitive and give customers more of what they want now and in the future. It will create a business that is more dynamic, more adaptable, more resilient and an even bigger contributor to the UK economy. Having worked at Asda before Sainsbury\’s, I understand the culture and the businesses well and believe they are the best possible fit. This creates a great deal for customers, colleagues, suppliers and shareholders and I am excited about the opportunities ahead and what we can achieve together.”

Commenting on the Combination, Judith McKenna, President and Chief Executive Officer of Walmart International, said:

“This proposed merger represents a unique and bold opportunity, consistent with our strategy of looking for new ways to drive international growth. Asda became part of Walmart nearly 20 years ago, and it is a great business and an important part of our portfolio, acting as a source of best practices, new ideas and talent for Walmart businesses around the world. We believe this combination will create a dynamic new retail player better positioned for even more success in a fast-changing and competitive UK market. It will unlock value for both customers and shareholders, but, at the same time, it’s the colleagues at Asda who make the difference, and this merger will provide them with broader opportunities within the retail group. We are very much looking forward to working closely with Sainsbury\’s to deliver the benefits of the combined business.”

Due to the conditions to complete the transaction, including regulatory approval which could extend into the second half of calendar year 2019, the timing of the loss recognition is not yet determined. Walmart expects the impact to earnings to be slightly dilutive in the first full year following completion of the transaction and neutral to slightly accretive in subsequent years, as synergies are realized. Walmart will update further after the deal closes. Walmart is scheduled to report first quarter results on May 17, 2018.

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