FinanceDraft

UK Supermarket Mega-Merger Could Lead to Closure of 132 Stores

Mergers and acquisitions continue apace in the United Kingdom as the Brexit shadow looms large over the horizon and a mega-merger between two major supermarket chains is the hot topic today. Sainsbury’s and Asda have been in talks over a merger for some time, and according to the former broker UBS, the deal should be a viable one even if the regulators forced the merged entity to close 132 stores.

The merger between Sainsbury and the Walmart-owned Asda was agreed in April 2018 in a deal worth $9.6 billion, but the deal still needs clearance. The deal needs clearance from the Competition and Markets Authority (CMA), the British regulator and the findings are going to be available at some point in February. It is believed that the concerned parties will be made aware of the findings on the week starting on 11th of February, according to some estimates. Because the deal is going to make the merged entity the largest chain of supermarkets in the United Kingdom, the CMA might insist on store closures as a pre-condition to greenlighting this deal.

According to a note by UBS, the merger is not in danger of breaking down even if those closures do take place. The note stated, “Assuming zero disposal proceeds, merger economics can absorb at least circa 132 remedy stores and potentially dozens more. Thus, we see scope for a deal close even if the CMA adopts a narrow market definition.” However, one thing that should always be at the back of the mind of the two companies is that it can be tough to find backers for such a large entity in an industry that is increasingly facing stiff competition from online alternatives.

The merged entity would eventually be bigger than Tesco, which is the biggest supermarket chain in the United Kingdom and the remedy stores that Sainsbury’s and Asda have at their disposal could be the big competitive advantage for them. In addition to UBS, Bank of America Merill Lynch also seemed unconcerned about the possibility of store closures. In a note that, BAML stated, “Even a high disposal number would not be a risk to the deal, in our view.” It seems that despite the troubles that such a large merger is supposed to run into, it is eventually going to go through and the two companies would simply need to take the store closures in their stride.

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