J Sainsbury CEO predicts GBP 350m purchasing power synergies from takeover of Asda; merger partners had combined 31.4% market share
J Sainsbury’s [LON:SBRY] chief executive Mike Coupe has predicted that the UK-based supermarket group’s proposed takeover of Asda would yield GBP 350m (EUR 397.1m) of synergies from the purchasing power of the merged group, The Times reported. Coupe, speaking on Tuesday, 1 May, said the enlarged group’s buying power would improve prices and choice for customers.
Sainsbury's said in its deal announcement of 30 April that the merged group would generate earnings before interest, depreciation and amortisation (EBITDA) synergies of at least GBP 500m, most of which would come from purchasing benefits, the opening of Argos concessions in Asda stores, and operational efficiencies.
Coupe said 100 suppliers account for 85% of Asda and Sainsbury’s food sales and that all of those suppliers have strong pricing power, while some of them will be bigger than the Sainsbury’s/Asda merged group.
The CEO went on to defend the proposed merger, arguing that it is his job to act with Sainsbury's customers' best interests in mind. Coupe said Sainsbury's wants to use the merged group's purchasing power to reduce prices for its customers and to reward its shareholders.
The item noted that Liberal Democrat party leader Vince Cable wrote to the Competition and Markets Authority’s (CMA) chairman Andrew Tyrie on Tuesday to urge the competition regulator to pursue a thorough review of the proposed merger. Cable said remedies imposed by the CMA had been “too meek,” according to the report.
Sainsbury's is to pay Asda’s parent company Walmart Inc [NYSE:] GBP 2.97bn in cash, with the Bentonville, Arkansas-based general retailer taking a 42% shareholding in the merged group. The deal represents a GBP 7.3bn valuation for Asda, the item said.
Separate reports in The Times and The Daily Telegraph cited figures from the market research firm Kantar, which showed that Sainsbury's and Asda had a combined market share of 31.4% in the UK in the 12 weeks to 22 April. Sainsbury's had 15.9% of the UK supermarket sector, while Asda had 15.5%. Sainsbury’s shares grew 0.2% over the period, while Asda’s sales increased by 1.4%.
However, Sainsbury’s market share showed a 0.3% year-on-year decline, while Asda’s market share was down 0.1% over the same period, The Times item noted.
The Daily Telegraph report noted that rival "big four" supermarket group Tesco [LON:TSCO] held a 27.6% market share and that the German discount grocery retailers Aldi and Lidl had 12.7% of the UK market between them.
Asda and Sainsbury's will probably highlight their differing geographical strengths in the UK as a defence of their merger, the report said, noting that close to 60% of Sainsbury’s sales comes from the South East and London and two-thirds of Asda’s revenues is derived from other parts of the UK.
The report also noted a demographic difference between the two supermarket groups, with affluent “ABC1” shoppers accounting for 62% of Sainsbury’s sales, but only 46% at Asda.
Link to original source (The Times)
Link to original source (The Times analytical report)
Link to original source (Daily Telegraph)