LONDON (Reuters) – Sainsbury’s and Walmart’s Asda are in talks to create Britain’s biggest supermarket group, overtaking Tesco by market share in a combination of their UK businesses worth up to 15 billion pounds ($20.7 billion).
Sainsbury’s confirmed on Saturday that it and Walmart, the world’s largest retailer, were in advanced discussions regarding a combination of the Sainsbury’s and Asda businesses and would make a further announcement at 0600 GMT on Monday.
It gave no details of the structure of any deal but a source with knowledge of the situation told Reuters the holding company of the combined group would retain the Sainsbury’s name and Sainsbury’s Chief Executive Mike Coupe would lead it.
The source described the planned deal – which would further consolidate Britain’s fiercely contested grocery market and help Walmart address its underperforming UK business – as a “merger”.
Three sources with knowledge of the situation said Walmart would take a minority stake in the combined business. Two said Walmart would be the biggest shareholder, with a stake of around 40 percent.
The Qatar Investment Authority, which in the past has tried to buy Sainsbury’s, is currently the supermarket group’s biggest shareholder with a 22 percent stake. A deal with Walmart would likely dilute that holding.
Sainsbury’s invited media and analysts to presentations scheduled for Monday.
Walmart declined to comment. Asda did not immediately respond to requests for comment.
Sky News, which first reported the news, said the deal could be worth over 10 billion pounds.
One of the sources who spoke to Reuters said the combined company would have an enterprise value, including debt, of around 15 billion pounds and would remain listed in London.
Sainsbury’s shares closed Friday at 269 pence, giving the company an equity value of 6 billion pounds.
Asda, which Walmart bought in 1999 for 6.7 billion pounds, is one of the retail giant’s largest and worst-performing international businesses.
In January, Walmart appointed Chief Operating Officer Judith Mckenna to run its international unit with a focus on fixing its ailing UK operations.
McKenna is a Briton and a veteran of Asda, where she served as both COO and finance chief, helping the chain increase its online sales amid fierce competition.
Roger Burnley, who took over as Asda CEO in January, is a former Sainsbury’s executive, working under Coupe. One of the sources said he would stay at the combined group.
All of Britain’s big four grocers, including the No. 4 player, Morrisons, have been losing share to German discounters Aldi and Lidl and also have to deal with growing demand for internet grocery shopping.
Tesco last month moved to strengthen its grip on the UK food sector with the 4 billion-pound purchase of wholesaler Booker.
Sainsbury’s and the similarly-sized Asda would overtake Tesco with a combined market share of 31.4 percent versus Tesco’s 27.6 percent, according to the latest data from market researcher Kantar Worldpanel.
Asda stores would continue to trade under their own brand separate from the more upmarket Sainsbury’s, the sources said.
A major uncertainty surrounding any combination would be whether the move secures approval from Britain’s competition regulator – the Competition and Markets Authority (CMA).
However, the CMA’s waving through of Tesco’s Booker deal may have changed the regulatory landscape.
“The unconditional clearance by the CMA of Tesco/Booker gobsmacked everybody,” said Shore Capital analyst Clive Black.
“This (Sainsbury’s/Asda) wouldn’t have happened without that deal.”
Additional reporting by Nandita Bose in New York; Editing by Mark Heinrich and Georgina Prodhan