Sainsbury’s-Asda merger heralds £600m refit and IT spend

The proposed £13bn mega-merger between Sainsbury’s and Asda is expected to trigger a £600m refit and computer integration programme across the UK store network.

While Sainsbury’s said there would be no store closure programme because of the merger, with both brands to operate side by side, the competition authority is expected to insist on disposals where both retailers predominate in local markets.

Announcing the agreed merger plan today, Sainsbury’s said it saw the opportunity to roll-out its Argos brand in Asda stores as a result of the tie-up, funded by part of the expected £600m business integration capital spending programme.

Sainsbury’s operates over 600 Sainsbury’s supermarkets and more than 800 Sainsbury’s Local convenience stores, as well as over 800 Argos stores, amounting to more than 2,200 locations. Asda operates through a network of 584 grocery stores, 18 standalone petrol filling stations and 33 Asda Living stores.

Asda’s US owner Walmart would receive just under £3bn in cash plus a 42% stake in the combined business, in a deal which values the Leeds-based chain at £7.3bn. Sainsbury’s market value, before trading opened on Monday, was £5.9bn.

David Tyler, chairman of Sainsbury’s, said: “The proposal will bring together two of the most experienced and talented management teams in retail at a time when the industry is undergoing rapid change. We welcome Walmart as a significant shareholder and look forward to working closely with them.”

Roger Burnley, Chief Executive Officer of Asda, said: Asda will continue to be Asda, but by coming together with Sainsbury’s, supported by Walmart, we can further accelerate our existing strategy and make our offer even more compelling and competitive.

From my six years with Asda and ten years with Sainsbury’s, I know first hand that both organisations are fortunate to employ some of the most talented and customer-focused colleagues in this market and I am excited by the opportunity of the two coming together.”

The merger will impact on both retailers’ land banks, which has led to a call for unwanted sites to be set aside for housing.

Dipa Joshi, director at Assael Architecture, said: “The brownfield sites that don’t survive the merger would be extremely well placed to provide new homes and communities, amid a well-documented housing crisis in the UK.

“The majority of the sites have great road connections and are near public transport links, as well as being located on the fringes of key urban locations, making them ideal sites to bring forward for development.”

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