Walmart Weighs a U.K. Retreat as Rivals Gain Sway -- 2nd Update
29 April 2018 - 2:52AM
Dow Jones News
By Ben Dummett, Sarah Nassauer and Saabira Chaudhuri
LONDON -- Walmart Inc. is in advanced talks to sell a majority
stake in its U.K. grocery chain Asda Group Ltd. to rival J
Sainsbury PLC, according to people familiar with the situation, a
sign that the retail behemoth aims to reduce risk in one of the
world's most competitive markets as local players consolidate.
Such a deal would create a U.K. food giant with combined revenue
of about GBP50 billion ($68.9 billion), according to the latest
available financial results.
In a brief statement Saturday, Sainsbury, which has a market
value of $8.16 billion, confirmed the talks and said it would make
a further announcement Monday. Walmart would be a minority owner in
the new entity, according to a person familiar with the matter.
The U.K., where Walmart operates about 600 Asda stores, is the
Bentonville, Ark., retailer's biggest overseas market by revenue.
It agreed to acquire Asda in 1999 for about $10.8 billion as part
of the U.S. retail giant's goal at the time to double its
international operations.
But since then the operation has also proven to be the most
problematic as sales have been hammered by competition from German
discounters Aldi and Lidl. The pair have kept prices low by
prioritizing speedy store deliveries, efficiency and high turnover
at the expense of range and customer service.
Although Sainsbury typically markets itself to slightly
wealthier shoppers, the chain, like its peers, has struggled to
compete against Aldi and Lidl. In March, it said it was cutting the
prices of 930 everyday grocery products in its stores and
online.
Because of this steep competition and large numbers of online
shoppers, the U.K. grocery market is billed by many retail
executives as the world's toughest.
In response, the U.K.'s market leaders have been moving to bulk
up.
Tesco PLC agreed last year to acquire Booker Group PLC, the
country's largest food wholesaler, for GBP3.7 billion ($5.1
billion), catapulting it from the U.K.'s biggest supermarket chain
to its largest food business.
Like that deal, any merger between Asda and Sainsbury would
likely draw antitrust scrutiny amid worries that consolidation
could give the combined entity greater power to maintain or raise
prices for food.
"It is likely that scrutiny would be a high and an investigation
prolonged," said Neil Saunders, managing director of GlobalData
Retail. "Furthermore, we believe that even if a deal was ultimately
permitted, it may be subject to remedies such as store disposals
and other measures which would be disruptive."
Walmart and Sainsbury are likely to defend the merger in part by
arguing the additional scale will allow the combined entity to cut
operating costs and keep prices lower.
Should Sainsbury and Asda reach a deal, the combined entity
would have a U.K. market share of over 30%, surpassing Tesco,
according to Kantar Worldpanel. All four industry leaders have lost
market share in recent years, while Aldi and Lidl have made
gains.
In recent years, Tesco, Sainsbury and rival Wm Morrison
Supermarkets PLC poured money into their operations, but Walmart
held back. It tapped a string of Asda's most senior executives,
including its operations chief, e-commerce head and two chief
financial officers, and put them in positions in its U.S. business,
weakening Asda's talent pool, say analysts.
Walmart executives have indicated since October that though Asda
isn't hugely profitable, they see it as a good source of cash flow.
Still in February, Walmart Chief Executive Doug McMillon said that
he sees the U.K. market as similar to the retailer's home market in
North America -- "largely built out."
According to Asda's latest available financial results, the
grocery-store operator generated GBP21.7 billion in revenue in
2016, down 3.2% from the prior year. By comparison, Sainsbury
increased sales 13% to GBP29.1 billion for its latest year ended
March 11, 2017. That gain, though, mainly reflected benefits from
its GBP1.4 billion takeover of Argos owner Home Retail Group in
2016. Argos, which sells everything from irons to furniture, has a
strong distribution network that Sainsbury has been leveraging to
compete with Amazon.
The talks between Walmart and Sainsbury were first reported by
Bloomberg.
Write to Ben Dummett at ben.dummett@wsj.com, Sarah Nassauer at
sarah.nassauer@wsj.com and Saabira Chaudhuri at
saabira.chaudhuri@wsj.com
(END) Dow Jones Newswires
April 28, 2018 12:37 ET (16:37 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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