Sainsbury – Asda merger deal has been finalized

Just two days after rumours about a possible merger between British department store chains Asda and Sainsbury’s surfaced, the news broke that the deal has been finalized. The group will become the largest in the United Kingdom, replacing Tesco.

Market share possibly lower

The Sainsbury and Asda merger will proceed, if the two British supermarket chains have anything to say about it: two days after the news broke about “ongoing talks” between both companies, the food retailers have now presented a merger deal that would create the largest company in the British food retail market. Tesco, which recently acquired wholesale company Booker, will become the second largest and the rapidly-advancing chains Aldi and Lidl will partially get cut off.

Analysts believe the deal’s impact on the British food retail landscape could be weaker than anticipated however: the merger group should have a 23.3 % market share, not much more than Tesco’s 22 % and a lot lower than previously anticipated, according to GlobalData in a press release.

Close stores

It remains to be seen whether the British Bureau of Competition will accept the deal as is: the new supermarket group may have to shut down stores if they are geographically close to other stores. According to GlobalData researcher Patrick O’Brien, “at least 75 stores of the 2,800 stores would have to close because of location”. That would then be in Tesco’s advantage: “If Asda has to shut down stores, its customers would rather move to Tesco or Aldi instead of a local Sainsbury stores. The same would apply to Sainsbury stores that would have to shut down.”

Aside from a smaller market share gain, store closures would also result in job cuts, on top of the jobs lost because of the inevitable restructuring and cost-cutting measures. The fear is that thousands of jobs would disappear when Asda and Sainsbury merge their back offices. Asda would most likely be hit harder, as it is the smaller of the two and was also the smaller one at the negotiation table.

This “super merger’s shock wave” is not only limited to the food retail industry: both Sainsbury (with online retailer Argos) and Asda (with its clothing brand George) also have a major stake in other industries. The stock market was definitely pleased with the revelation: Sainsbury shares shot up 20 % instantly.