Walmart, Sainsbury Strike U.K. Deal

In the sharply competitive market that is the United Kingdom, Walmart is combining its wholly owned Asda Group with J Sainsbury, a food and general merchandise retailer.

By bringing together two distinctive customer propositions, the companies said they hope to create a more competitive, adaptable and resilient business.

According to figures published by the British Broadcasting Co., the combination of the number two U.K. supermarket operator, Sainsbury, and number three, Asda, would surpass Tesco to become the top grocery retailer in the country.

The combination, subject to regulatory approvals, would give Walmart 42% of the share capital of the integrated business, made up of 29.9% of Sainsbury’s ordinary shares, with full voting rights attached. In addition, Walmart would receive approximately $4.1 billion, in cash, subject to closing adjustments, valuing its Asda operation at approximately $10 billion, on a debt-free, cash-free and pension-free basis.

Based on deal terms and valuations, Walmart stated that it expects to recognize a non-cash loss of about $2 billion. The company pointed out that, in completing the transaction, including winning regulatory approval, which could extend into the second half of calendar year 2019, Walmart has not yet determined the timing of the loss. The company maintained that it expects the impact to earnings to be slightly dilutive in the first full year following completion of the transaction and neutral to slightly accretive in subsequent years, as synergies are realized.

The new business would operate a dual brand strategy, with Asda continuing to be run from the company’s Leeds headquarters by its CEO Roger Burnley, who would join the group operating board of the combined business.

“We believe the combination offers a unique and exciting opportunity that benefits customers and colleagues,” said Doug McMillon, Walmart’s president and CEO. “As a company, we’ve benefited from doing business in the U.K. for many years, and we look forward to working closely with Sainsbury’s to deliver the benefits of the combination.”