Walmart has Plan B if Asda-Sainsbury's merger falls through

If the British competition watchdog blocks the proposed merger between Walmart‘s subsidiary ASDA and Sainsbury’s, an investment fund could offer a way out.

50/50?

In April last year, Walmart announced a proposed merger of ASDA with Sainsbury’s, the second biggest supermarket chain in the United Kingdom. In the new company, the American retail giant would then own an interest of 42 %. This would fit nicely into Walmart’s new overseas policy, in which Walmart no longer wants to open its own stores overseas, but rather take financial participations in foreign retailers, such as Flipkart in India and JD.com in China.

However, the British market is dominated by only a handful of large players today, and a huge merger like this one would distort competition. That is why observers think there is only a 50 % chance that the merger will be green-lighted. And even if the operation is approved, the new merged group will undoubtedly have to sell hundreds of stores.

In case the deal is blocked, Walmart is said to already have an alternative plan: supermarket chains are interesting targets for venture capital funds as they generate a lot of cash. In addition, ASDA owns a lot of real estate that can be sold. Previously, Walmart sold all of its Brazilian subsidiaries to a private equity firm. A sale of ASDA would however be hampered by the high price tag and the uncertainty of the brexit. The merger with Sainsbury’s remains the best scenario, but there is an emergency exit.