Sainsbury’s and Asda are in shock talks over a £10bn merger that would change the British grocery landscape.
The potential deal, first reported by Sky News, would create a new supermarket giant with a combined market share of 31%, greater than Tesco, the UK’s longstanding number one player, which has 27.6%, according to the most recent data from the industry analysts Kantar Worldpanel.
Sainsbury’s, which swallowed Argos in 2016, is thought to be in the driving seat for the deal. Asda, which is owned by the world’s largest retailer, Walmart, has been struggling in recent years as the fast-growing German discounters Aldi and Lidl have stolen its customers.
Sainsbury’s is also looking for ways to shore up its market position in the wake of Tesco’s recent takeover of the Booker cash and carry business.
Consolidation among the big four supermarkets – Tesco, Sainsbury’s, Asda and Morrisons – has previously been unthinkable because of competition concerns, but the retailers are said to have been emboldened after the Competition and Markets Authority (CMA) waved through the merger of Tesco and Booker, the UK’s biggest retailer and grocery wholesaler.
It is unclear how the deal between Sainsbury’s and Asda might be structured, including whether Walmart would seek to reverse Asda into Sainsbury’s and retain a major stake in the enlarged group. A statement is expected to be rushed out this afternoon.
If the merger happens it would be biggest shake-up in UK grocery retailing since Morrisons took over Safeway in 2004. Sainsbury’s is led by its chief executive, Mike Coupe, while Asda isrun by a former Sainsbury’s executive, Roger Burnley, who quit the group for a more senior role at the rival in 2015.
Analysts are debating the merits of the proposed deal on social media. “It would be a fascinating combination: creates a huge power – not just in food but also clothing, household goods and toys,” Bryan Roberts, a TCC Global analyst, said on Twitter. “I can’t see the regulators swallowing it without significant disposal of duplicate sites however.”