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Sainsbury’s to Merge with Asda

The U.K. supermarket landscape is poised for a shakeup.

On Monday, Sainsbury’s announced plans to merge with Asda, a wholly owned subsidiary of Walmart.

Under the proposed deal, Walmart would control 42 percent and receive 2.97 billion pounds ($4.1 billion), which values Asda at 7.3 billion pounds ($10 billion). Walmart is also expected to receive two spots on the board as non-executive directors.

Asda currently commands 12.7% of the grocery market in the U.K. while Sainsbury’s has a 13.6% market share, according to the Sainsbury’s annual report. In terms of perception, the report noted that Sainsbury’s leads in offering fresh food while Asda is known for offering fair prices.

Sainsbury’s said it plans to maintain both banners, positioning them to attract distinct customer groups. Sainsbury’s chairman, CEO and CFO will run the new business, while Asda will maintain its own CEO.

“We believe that the combination of Sainsbury’s and Asda will create substantial value for our shareholders and will be excellent news for our customers and our colleagues,” said David Tyler, chairman of Sainsbury. “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.”

Sainsbury’s CEO Mike Coupe noted that as a former Asda employee, he has the inside track on that business and its operations.

Beyond grocery, the two retailers offer a wide variety of general merchandise goods as well as clothing. Sainsbury’s said the combination of the businesses will allow it to “invest in price, quality, range and the technology to create more flexible ways for customers to shop.”

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Asda’s George label is the No.2 clothing retailer in the U.K. by volume while Sainsbury’s Tu brand currently holds the sixth slot.

Sainsbury’s posted a same-store sales increase of 1.3% for the year. Sainsbury’s achieved a 3.8% growth in apparel sales in 2017. Online sales in this category skyrocketed by 45 percent.

Asda has achieved four consecutive quarters of positive comp sales growth.

Going forward, the release indicated that the relationship with Walmart will remain an important one through which it will share knowledge and tech.

“This proposed merger represents a unique and bold opportunity, consistent with our strategy of looking for new ways to drive international growth,” said Judith McKenna, president and CEO of Walmart International. “We believe this combination will create a dynamic new retail player better positioned for even more success in a fast-changing and competitive U.K. market.”