Walmart’s Asda and Sainsbury’s announce UK merger deal

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In this arranged photo illustration, a Sainsbury’s shopping bag is seen on the ground in the car park of an Asda supermarket on April 29, 2018 in London, England. Major supermarket chains Sainsbury’s and Asda have been reported to be in talks over a £10 billion merger deal which would mean the possible new supermarket group would have 31.4% market share, compared with Tesco’s 25.6%.

“The market has changed beyond recognition in the last 10 years and even in the last three years, the discounters have doubled their share, we’ve got new entrance coming into the market that just couldn’t exist a few years ago,” O’Byrne told CNBC Monday morning.

The merger will keep both the Sainsbury’s and Asda brands. The firms said in a statement that Walmart, which owns Asda, will have 42 percent of the issued share capital of the combined business and will not hold more than 29.9 percent of the total voting rights.

They also said that the combined business will generate at least £500 million ($688.62 million) in cost savings and lead to a reduction in prices of about 10 percent.

According to Bruno Monteyne, European food retail analyst at Bernstein, “scale remains the most important factor in food retail profitability.”

There have been several recent mergers in the food industry across Europe, in an attempt to fight increased competition from e-commerce firms, including Amazon. “The power of purchasing has been a driver behind several recent deals within the industry,” Monteyne also said in a note Monday.

The two grocers have struggled with their sales growth, which has weighed on their ability to get cheaper deals with suppliers.