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Investment Manager Says Sainsbury’s-Asda Merger Forced By Amazon Threat


04/30/2018


Investment Manager Says Sainsbury’s-Asda Merger Forced By Amazon Threat
According to an investment manager, the rising threat from Amazon for the retail players in the U.K. retail industry is the cause of the proposed merger of Sainsbury’s and Walmart’s Asda, The retailers want to create a protection for themselves by growing in size through the deal.
 
On Monday, the two companies made the announcement of the merger deal which will create the largest retailer in the U.K. and dwarf the market share of Tesco – the current market leader. Both the brands of Sainsbury's and Asda would be retained in the deal hat is expected to be worth about £7.3 billion ($10 billion).
 
The two companies said that there would be a potential decrease in prices of about 10 per cent because of a combined cost savings of at least £500 million ($688.62 million) that would be generated by the new combined business.
 
The deal wasn't "the most sophisticated", said Peter Toogood, chief investment officer at Embark Group in a television interview.
 
"The Amazon protection program continues" was how he described the merger.
 
Slow growth in sale for both Sainsbury's and Asda has resulted in their decreased leverage to get cheaper deals from suppliers. The entire U.K. supermarket and grocery retailing business is under pressure because of both online retailers and discounters.
 
"It's just putting two companies together that aren't growing. So, again, it will help the margin story, but they have also just told you they are going to whack prices down by 10 percent… Tesco…, if anything, is holding their price," Toogood added.
 
The merger "allows us, particularly in a very competitive market online and with discounters, to give much greater value to our customers and that's very important", said Kevin O'Byrne, chief financial officer at Sainsbury's, to the media.
 
The owner of Asda – Walmart, will not hold more than 29.9 percent of the total voting rights and will possess 42 percent of the issued share capital of the new combined business, the two companies have said in a statement.
 
Of the impact of Amazon on investment decisions, Toogood said: "Just for laughs, every meeting we go to is what area can Amazon go into, including things like car paint. Those are actually conversations we have with fund managers."
 
And according to the Wall Street Journal, Walmart is planning to invest in India and give up the control of its business in Brazil. Recent reports have suggested that the company is keen to take up a majority stake at Flipkart Group, which is the largest e-commerce company in India.
 
(Source:www.cnbc.com)