Closing summary
Time for a recap:
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Sainsbury’s is on track to become Britain’s biggest supermarket after agreeing a deal with Asda’s owner, Walmart. Under the deal, Walmart will own 42% of the combined company, which will control around a third of supermarket revenues.
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The two companies have agreed that prices could fall by up to 10% on some popular items if the deal is approved.
They have also pledged not to close stores or lay off store staff - however, analysts believe some stores will be sold off to rivals.
My colleague Sarah Butler explains:
The merger of the UK’s second and third largest retailers is expected to trigger a major inquiry which analysts predict will result in at least 75 stores having to be disposed of. It would be the biggest shake-up in the market since the merger of Morrison and Safeway in 2003 when dozens of stores changed hands.
Sainsbury’s takeover of Asda is not expected to complete until the second half of next year as regulators crunch the numbers on potential overlap between the two groups’ stores.
Mike Coupe, the Sainsbury’s chief executive who plans to lead the merged business, said the deal was a “transformational opportunity to create a new force in UK retail, which will be more competitive and give customers more of what they want now and in the future”.
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Shares in Sainsbury’s have surged 15% today, closing at their highest level since the summer of 2014.
- MPs have warned that the deal could cost jobs, hurt competition, and lead to store closures - despite Sainsbury and Asda’s promises.
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Labour are calling for an full, urgent probe into the deal.
Government minister Andrew Griffiths, though, has argued that the retail sector is going through tough times - and that Sainsbury and Asda are trying to get ahead of the curve. - In banking, TSB customers are still struggling to access their accounts after more than a week of disruption. Lloyds Bank has also suffered from IT gremlins today, with some users unable to get its app to work.
- The Treasury Committee has announced that it will question TSB’s chief, Paul Pester, on Wednesday.
That’s all for today. Thanks for reading and commenting. GW
Back in the City, shares in Sainsbury have closed 15% higher, as traders welcome its proposed takeover of Asda.
That adds some £858m to Sainsbury’s market capitalisation, pushing it up to £6.78bn.
Asked again about the future of stores, minister Andrew Griffiths repeats that Sainsbury and Asda are pledging that no stores will close, and no jobs within stores will be lost.
But Labour MP Justin Madders isn’t convinced - he says workers will pay the price of the £500m of efficiency savings planned under the deal.
Q: Attacks on terms and conditions are inevitable; what will the minister do in two years when that has happened?
Griffiths replies that his powers were laid out in the Enterprise Act 2002 -- the decision on whether to allow the deal now rests with the CMA.
And that’s the end of the urgent question.
Dromey: Government is 'waxing lyrical' about Sainsbury-Asda deal
Jack Dromey MP, a former top official at the Unite union, tells the House that supermarkets are powerful, as employers and across their supply chains.
They must not be allowed to abuse that power, Dromey tells fellow MPs. Does the minister understand the “dismay” among employees about this deal, which came “out of the blue” at the weekend.
Dromey accuses Griffiths of ‘waxing lyrical’ about Sainsbury and Asda’s promises (for example...); will he act to ensure that these are not just Day One guarantees, but can be counted on in years to come?
Griffiths replies that it is ‘early days’, and points out that the current government brought in the Groceries Code Adjudicator to protect farmers and other suppliers.
Q: How long will workers and customers face uncertainty over this deal, and what impact will this have on portfolio investment?
Andrew Griffiths says that Sainsbury and Asda hope the CMA will hold a ‘fast-track’ review. If that happens, then the detailed Phase 2 investigation could be completed in six months.
Labour MP Susan Elan Jones asks a straight question -- does the minister think this is a good deal or a bad deal for British farming?
But she doesn’t get a straight answer.
Minister Andrew Griffiths says the deal must be considered by the shareholders of Asda and Sainsbury’s – so it’s not appropriate for the government to pass judgement.
Labour’s Chris Matheson is also worried that jobs will be lost among the distribution chain that serve Sainsbury and Asda stores today.
Matheson points out that many distribution centres were sighted to replace lost manufacturing jobs; what guarantees can the government give to those “difficult areas”?
Andrew Griffiths says his constituency, Burton, contains some distribution jobs (it’s in the middle of the country).
However, he makes two points:
- First of all... the number of supermarkets served will be the same if the deal goes through, so the number of lorries and goods will be the same
- Second, the issue of job losses is not one that the government can consider under the Enterprise Act.
Philip Hollobone, Conservative MP for Kettering, says his constituency currently has a large Sainsbury’s and a large Asda.
Workers and shoppers want to know - will we still have both stores in two years time?
In reply, minister Andrew Griffiths says that Kettering shoppers and workers want to know they have choice and competition, and that those jobs are protected.
If they are both “thriving supermarkets”, either the CMA will decide there isn’t a competition issue and allow the combined company to keep running both, or it will say there are competition issues, and one will be sold, Griffiths explains.
Enjoying every MP standing up to tell the House exactly how many Sainsbury's and Asda branches there are in each of their constituencies
— Alys Key (@alys_key) April 30, 2018
Conservative MP Stephen Kerr says the concentration of supermarket power could have a “potentially devastating effect” on suppliers. Will their voices be heard?
Griffiths replies that suppliers will be included in the CMA’s investigation.
Business minister Andrew Griffiths tells MPs that he and Business Secretary Greg Clark had met with bosses at Sainsbury's and Asda on Monday morning, and would hold further meetings with trade unions. Said ministers would be monitoring the deal closely.
— Mark Casci (@MarkCasci) April 30, 2018
The CMA will consider what happens in constituencies where there currently Sainsbury and Asda stores close together, Andrew Griffiths says.
If they believe it will be anti-competitive for both supermarkets to be there, they will force a sale to a competitor.
Conservative MP: Asda's HQ will close
Conservative MP Mark Menzies says he worked in Asda’s head office for 11 years.
He doesn’t believe “that place” will be there in a few years, so there’s no point the government trying to make promises about jobs.
Menzies also criticises the government for calling the deal a merger - it’s a takeover by Sainsbury’s, he insists, so “lets stop using false terminology”.
Finally, Menzies urges the government to protect workers in distribution centres across the country; otherwise, they will be “absolutely hammered” if this deal goes ahead.
In response, Andrew Griffiths says it is a merger legally.
There will be efficiency savings, he says, but Sainsbury and Asda have assured the government that they will continue to operate as different businesses.
Labour’s Rachel Reeves says workers at Asda’s headquarters in Leeds (in her constituency) will be ‘incredibly concerned about their future’ given the lack of assurances about jobs.
Q: The industrial strategy is about rebalancing the economy away from London - what assurances can the government give that this deal won’t rebalance jobs away from Yorkshire?
Business minister Andrew Griffiths points out that many high street names have been lost in recent years, due to the changing retail climate [ie, competition from Amazon]
Today’s deal shows “two businesses trying to get ahead of the curve and future-proof themselves in a vey challenging market” he adds.
That’s quite an endorsement from the government bench - Sainsbury’s and Asda must be delighted.
Minister assures Parliament that head offices of Sainsbury’s and Asda will remain open
— UnitePolitics (@UnitePolitics) April 30, 2018
Labour MP Hilary Benn asks whether jobs are at risk at Sainsbury’s headquarters.
Minister Andrew Griffiths says he doesn’t yet have any reassurances, beyond the promise that both company’s HQs will be kept open.
Conservative MP Robert Halfon suggests that Sainsbury’s could break its commitment not to eliminate store workers, once the merger has gone through.
Griffiths encourages Halfon to engage with the CMA and both companies over his concerns.
Conservative MP Andrew Selous says his Dunstable constituency has an Asda and a Sainsbury’s close to each other, with a clutch of other supermarket outlets - and an Amazon fulfillment centre - close by. What might the Competition and Markets Authority think about this situation?
The honourable member is spoiled for choice, minister Andrew Griffiths replies.
Sainsbury-Asda deal discussed in parliament
Over in parliament, the government is facing an urgent question on the Sainsbury-Asda deal.
Labour’s Rebecca Long Bailey is putting the question now, asking whether the deal will lead to job cuts.
She also warns that the merger will “radically alter the whole grocery sector”, affecting suppliers and farmers as well as customers and staff.
The government urgently needs to needs to broaden out the public interest test applied to takeover teals, Long Bailey says, to protect these people.
Business minister Andrew Griffiths responds, saying he has spoken to the CEOs of Sainsbury and Asda this morning, and told them that it was important to treat suppliers fairly.
Griffiths tells the House that he told the companies the important of engaging with the unions..... and that he had received assurances that both head offices will remain open.
But... Griffiths also points out that the retail sector is in a period of huge flux - the way people are shopping is changing fast, so retailers must change and adapt.
Griffiths also cited Sainsbury’s claim that prices will be cut, by up to 10% for popular items.
Retail analyst Mark Brumby has a few thoughts on the Sainsbury-Asda deal:
If SBRY/ASDA is to cut prices by 10%, there will be more left over for the consumer to spend on beer & pizza
— Mark Brumby (@brumbymark) April 30, 2018
What is J Sainsbury now if not a department store? But on one floor & with better parking but Habitat, Argos etc. now often parcelled up
— Mark Brumby (@brumbymark) April 30, 2018
Haldane: Economists can learn from World of Warcraft
You can usually rely on the Bank of England’s chief economist for an eye-catching speech with a few choice quotes.
And today, Andy Haldane has argued that music streaming site Spotify and online game World Of Warcraft can teach economists a few lessons on how to handle data.
To be honest, Haldane actually made these comments more than a week ago, to King’s College Business School. But the Bank of England has only just released the text, so they’re worth looking at now.
Haldane’s theme is “Big Data”, and the way that central bankers can use the explosion of data in recent years to get a better picture of the economy’s moving parts.
He says that a major breakthrough is close:
In time, it is possible these sorts of data could help to create a real-time map of financial and activity flows across the economy, in much the same way as is already done for flows of traffic or information or weather.
Once mapped, there would then be scope to model and, through policy, modify these flows. This is an idea I first talked about six years ago. Today, it looks closer than ever to being within our grasp.
Haldane argued that behavioural economists could explore “non-traditional means” when trying to forecast how people will behave....
To give one recent example, data on music downloads from Spotify has been used, in tandem with semantic search techniques applied to the words of songs, to provide an indicator of people’s sentiment. Intriguingly, the resulting index of sentiment does at least as well in tracking consumer spending as the Michigan survey of consumer confidence.
And why stop at music? People’s tastes in books, TV and radio may also offer a window on their soul. So too might their taste in games. Indeed, I am interested in the potential for using gaming techniques, not just to extract data on people’s preferences, but as a means of generating data on preferences and actions.
Haldane also suggests that today’s massive multiplayer online games could work as a sandbox for economists to examine behaviour -- to aid forecasting the next time there’s a crisis.
A gaming environment could be used to understand behaviour in a way which placed fewer restrictions. People’s behaviour would be observed directly in the act of game-playing which, provided this behaviour was a reasonable reflection of true behaviour, would give us new data. Because this is a virtual rather than real world, with shocks controlled and regulated, that could make it easier to address issues of causality and identification in response to shocks, including policy shocks.
There are already multi-person games with primitive economies attached to them, which allow goods and monies to change hands between participants. These include EVE Online and World of Warcraft.
The Press Association have published a Q&A on the Sainsbury-Asda deal.
Q: What will it mean for shop prices?
The two supermarket giants have pledged to invest the cost efficiencies generated from the merger into lower prices.
Sainsbury’s expects to save £500m from merging with Asda, and has said it will lower shop prices by 10% on everyday products.
However, this could have more widespread implications for shop prices if discounters Aldi and Lidl decide to cut their prices even further to stay ahead of their main-market rivals.
Laith Khalaf, senior analyst at Hargreaves Lansdown, said: “The executives of other supermarkets will have their heads in their hands at the prospect of another price war.”
Q: What will it mean for stores?
The Competition and Markets Authority (CMA) will soon start its investigation of the proposed merger, raising the prospect that Sainsbury’s and Asda will be forced to sell off stores if they directly compete in local areas.
However, Sainsbury’s insisted on Monday that it does not expect to shut any stores. The supermarket says its store footprint is more focused on the south, and Asda has more stores in the north.
Q: What will happen to Argos?
Sainsbury’s bought Argos in 2016 and already has more than 200 Argos outlets within its supermarkets, having rapidly expanded over the past year.
It is expected that Argos will now start appearing in Asda’s stores, with Sainsbury’s chief executive Mike Coupe saying this morning that the deal “brings scale in clothing and general merchandise”.
Q: Why are the two companies joining forces now?
All retailers are having to take drastic action to stay competitive during a critical time for the sector. With Amazon eyeing up the UK food market with its Amazon Fresh delivery service, food retailers will be nervous about its sprawling logistics network and buying power.
Sainsbury’s and Asda also have to fend off price competition from Aldi and Lidl. As a value supermarket, Asda has been under significant pressure as the German discounters have grown their market share.
Tesco’s recent merger with wholesaler Booker Group, which was cleared with minimal fuss by the CMA, will also have given executives at Sainsbury’s and Asda confidence about the possibility of joining forces.
Updated
TSB chief Paul Pester has warmed up for his looming parliamentary grilling by updating MPs about the bank’s IT crisis.
He’s written to Nicky Morgan MP, answering her questions about the technology failings.
Pester says the TSB have launched a “proactive customer redress programme”, to meet his pledge that no customers are left out of pocket.
He also claims that TSB has made significant progress in bring its internet banking and mobile app back into use, saying
On Monday 23rd April we were only able to serve c.200,000 sessions via our website versus an expected level of c.450,000. As of Thursday 26th April, we were able to serve c.450,000. This is consistent with the number of sessions we would expect to serve.
On Monday 23rd April approximately 72% of customers attempting to access the mobile app were successful on first attempt. As of Friday 27th April this had risen to approximately 93%. This is typical of the proportion we would have seen pre-migration.
Pester also confirms that more than 400 customers saw another customer’s account details - because the two accounts were linked:
TSB, like many other banks, enable customers to nominate a third party to have access to their accounts - these are called nominee accounts. Typically this will be a parent having access to a child’s account or a grown-up child managing an ageing parent’s account. The ability for the third party to see the customer’s account information is usually limited to branch and telephony channels.
However, on the evening of Sunday 22nd April access was provided via digital channels. In addition, as well as enabling the third party to see the customer’s data, the customer was able to see the third party’s data. Therefore, in the “parent and child” example, the parent could see the child’s transaction data but the child could also see the parent’s transaction data.
This explains some of the comments in social media where customers expecting to be overdrawn (the “child”) could see large credit balances (the “parent”). No personal data was visible, just account balance data.
Finally, Pester also admits that customers faced an average wait of one hour if they tried to phone TSB a week ago; by Thursday, this had dropped to 30 minutes (although some customers have reported much longer waits).
TSB to face MPs over IT crisis on Wednesday
Get the popcorn in!
Britain’s Treasury Committee will be grilling Paul Pester, TSB’s chief executive, and the bank’s chairman Richard Meddings, on Wednesday.
The committee will demand answers about exactly how TSB’s IT systems collapsed more than a week ago, and how they will compensate affected customers.
Committee chair Nicky Morgan MP says:
“The Treasury Committee is extremely concerned by the problems at TSB, and by the apparent miscommunication to customers about the extent and nature of these problems.
“It’s been reported that services such as online banking have been down for some TSB customers for over a week. Many individuals and businesses will have made arrangements for the planned outage, but not for the additional time that the systems have been unavailable.
“We will take evidence from TSB and Sabadell representatives to find out how they got into this mess, who is responsible, and how they are putting it right.”
Commenting on our evidence session with TSB and Sabadell this Wednesday on the recent IT problems at TSB, Chair @NickyMorgan01 said that the Committee wants to "find out how they got into this mess, who is responsible, and how they are putting it right." pic.twitter.com/M9qsGs3MgA
— Treasury Committee (@CommonsTreasury) April 30, 2018
Labour: We need an urgent investigation into Sainsbury-Asda deal
Just in: The Labour Party are calling for an urgent investigation into the Sainsbury-Asda merger.
Rebecca Long Bailey MP, Labour’s Shadow Business Secretary, says the deal has “significant competition risks”, and the Competition and Markets Authorities must take a proper look (ie, a phase 2 investigation)
Long Bailey says the CMA must secure “concrete assurances.” to protect workers and suppliers.
“There are risks to jobs by potential reorganisation and store closures and risks to the wider grocery industry as a Tesco/Sainsbury’s-Asda duopoly emerges with unrivalled power to dominate, dictating choice and prices for consumers which in time may prove detrimental.
“This unrivalled power also poses immense risk to suppliers with unprecedented bargaining power to drive suppliers prices and payment terms down which could cause instability and damage to the food and grocery manufacturing industry.
TSB IT crisis continues.... and now Lloyds users report problems
The IT crisis at TSB Bank has dragged into its second week.
Some customers are still unable to get into their accounts, 10 days after TSB tried to migrate to a new technology platform.
Experts from IBM have been working at TSB since last Thursday, to try to get its Internet banking and mobile app online. But clearly the ‘meltdown’ isn’t over, given these tweets from UK businesses and retail customers:
Seriously unacceptable by any standards. I still cannot access my business bank account or use the app to make payments to my suppliers or landlord. I could make a complaint but whats that going to achieve, I need access to my business funds NOW!
— The Grey Goose (@thegreygoose_) April 30, 2018
@TSB hi tsb. Still can not access my account through online banking or the app, and it has been two weeks. I have rent to pay today. I have submitted a complaint but this are there any status updates? Will I be able to pay rent today or should I call my landlord and let him know pic.twitter.com/2oyeXyQnrx
— Lewis Martins (@LewisMartins) April 30, 2018
Alarmingly, TSB isn’t the only bank facing complaints today.
Lloyds Bank (which spun out TSB in 2013) has suffered ‘intermittent’ problems this morning. Its Halifax division is also caught up in the outage, as these tweets show:
Hi, I'm SC. We're experiencing some intermittent issues & looking to resolve this ASAP. Sorry for any inconvenience caused.
— Lloyds Bank (@AskLloydsBank) April 30, 2018
Hi, I'm SG. We're aware of intermittent issues with Internet Banking & are working to resolve this ASAP. Apologies for any inconvenience caused.
— Halifax (@AskHalifaxBank) April 30, 2018
Sainsbury deal drives FTSE 100 to three-month high
News of Sainsbury’s tie-up with Asda has driven Britain’s stock market to its highest level since the start of February.
The FTSE 100 has gained 37 points, or 0.5%, to 7539 this morning.
Sainsbury’s is leading the way, up 17% at a four-year high right now. Advertising giant WPP is close behind, gaining 8% after reporting better-than-expected results this morning, and saying it could sell some assets.
David Madden of CMC Markets says:
Sainsbury’s shares are up 15% after the company announced plans to merge with Asda. The move is subject to regulatory approval, but should it go ahead it would be worth £7.3 billion. Increased competition from Aldi and Lidl is main motivation behind the proposed deal. The deep-discounters have disrupted the UK supermarket sector severely, and now have a combined market share of approximately 12%. Sainsbury’s and Asda are the second and third-largest supermarkets by market share, and should the deal go ahead, it would put them in first place. Sainsbury’s predict it will save £500 million through synergies. The retailer also updated the market with its full-year figures, as underlying pre-tax profits rose by 1.4% to £589 million, which was comfortably ahead of the £559 million expected.
WPP shares are in demand this morning after it released better-than-expected sales figures, while the advertising giant also stated a strategic review was underway. First-quarter net sales dropped by 0.1%, while analysts had expected a decline of 1%. The company also said it would take a ‘fresh look’ at business in light of Sir Martin Sorrell stepping down earlier this month. There is talk WPP could spin off assets, but nothing has been confirmed, and no timeline has been stated.
Updated
Here's the new family portrait: Sainsbury's boss Mike Coupe, Walmart boss Judith McKenna and Asda boss Roger Burnley. This happy family still needs the approval of regulators. pic.twitter.com/uUgjkg4agV
— Ben Thompson (@BBCBenThompson) April 30, 2018
Sainsbury-Asda: What the analysts say
Simran Jagdev, companies analyst at the Economist Intelligence Unit, says Sainsbury’s decision to tie-up with Asda is a surprise, partly prompted by the threat of Amazon:
The deal points to the highly competitive UK grocery market, which has long been concentrated in the hands of the top four players— Tesco, Sainsbury, Asda, Morrisons - but is now facing an onslaught from new challengers. Sainsbury’s seems to be continuing the offensive against online players such as Amazon and discount grocery retailers such as Aldi and Lidl that Tesco started last year with its merger with Booker.
The deal will help Sainsbury fend off this new competition. It will also mark Walmart’s operational exit from the UK, as part of its strategic decisions to instead work through partnerships in international markets.
Amisha Chohan, equity research analyst at Quilter Cheviot, says the deal is a “masterstroke” - as long as the CMA approve it.
It would result in the company becoming the biggest grocer in the UK, ahead of Tesco. Its guided net synergies of over £500m seem prudent and we believe it could be significantly in excess of this. Sainsbury’s experience from the Argos acquisition should enable it to deliver ahead of the synergy guidance.
Although this news is not ideal for Tesco, we remain positive on the UK’s current largest retailer due its recent takeover of Booker, and the wholesale opportunities this will bring.”
Paul Mumford of Cavendish Asset Management believes Sainsbury’s and Asda will be forced to sell some stores to get this deal “through the hoop”:
Store disposals could naturally be offered to others in the sector with M+S and Morrisons being the most likely tenants, but it’s hardly the best climate to be a net seller of large retail space. There will of course be some management synergies too, so a proclamation of no job cuts will no doubt be reversed soon enough.
This will obviously create a mighty force. But the big questions now are what influence will Walmart have on the group? And where does this leave other players? Sainsburys already has a big challenge to show that the Argos acquisition is bearing fruit, and now it’s faced with driving cost synergies from Asda. The indicated 10% lower prices on regularly bought products will have raised eyebrows amongst the food producers who will fear another squeeze on margins.
Competition authorities: We'll take a look
Britain’s competition watchdog have confirmed they are likely to review the Sainsbury-Asda deal.
In a statement, the Competition and Markets Authority says:
This merger is likely to be subject to review by the Competition and Markets Authority (CMA).
The CMA adds that it will assess whether the merger is bad for customers.
During a Phase 1 review, the CMA would assess whether the deal could reduce competition and choice for shoppers.
After this first phase, the merger could be cleared or, if a potential reduction in competition is identified, it would be referred for an in-depth, Phase 2 investigation lasting up to 24 weeks - unless the merging parties offered immediate proposals to address any competition concerns identified.
The surge in Sainsbury’s shares this morning is a blow to speculators who have been betting against the supermarket.
Some major hedge funds have been ‘shorting’ Sainsbury’s shares recently, by selling borrowed shares and hoping to buy them back cheaper in future. That bet seems to be unravelling, as Sainsbury’s shares hit their highest level in almost four years.
As The Times explained this morning:
A little over a tenth of Sainsbury’s shares were being shorted going into the weekend, with investors betting on a drop in the supermarket’s share price.
Large London-based hedge funds such as Odey Asset Management, GLG and Marshall Wace have short positions in Sainsbury’s amid investor anxiety about the future facing traditional retailers.
Andy Brian, head of retail at Gordons law firm, also believes store closure are inevitable if this deal isn’t blocked by the competition authorities:
“One thing is clear; despite what is being said officially, stores would have to close. That’s not necessarily a bad thing for the brands, although it would of course be a bad thing for those store employees.
Moving forwards, one theory is that this deal could allow Sainsbury’s the freedom to compete hard against M&S Food and Waitrose at the top end of the grocery market and leave Asda to compete further on price against the other mid-market players, as well as Aldi and Lidl.
Research group Edison have estimated that around 70 Asda stores could be vulnerable to sale or closure, as they’re rather close to a Sainsbury’s outlet.
Good @Edison_Inv_Res breakdown @sainsburys deal. "The CMA often uses a local test of proximity ie 1 mile or 5mins drive time, around 70 of Asda’s 630-odd stores are located within a mile of one of Sainsbury 1400 outlets" #Asda
— Karen Tso (@cnbcKaren) April 30, 2018
The Federation of Small Businesses is concerned that small suppliers will be treated roughly if Sainsbury’s and Asda are allowed to form a new retail titan.
FSB chairman Mike Cherry says regulators must demand firm commitments before green-lighting the deal, as Sainsbury is already talking about £500m of cost savings and a boost to earnings.
“A merger of this size will concentrate a lot of power in the hands of one giant company, and it’s important that power isn’t misused to coerce small suppliers into accepting unfair contracts and poor payment terms.
“Those at the top of Sainsbury’s and Asda should explain how they plan to merge these two supply chains fairly, and give reassurance that cost savings won’t be achieved simply by milking their small suppliers for all they’re worth.
“When investigating this proposed merger, the Competition and Markets Authority should be looking for cast-iron commitments that a positive standard will be set for working with smaller suppliers.
Data firm Allies has created an interactive map, showing exactly where Sainsbury’s and Asda’s stores are today.
It also shows Argos outlets (Sainsbury’s acquired Argos in 2016), so it gives a good idea of where there might be competition issues.
Updated
Sainsbury's-Asda: The key charts
Here are the vital statistics about today’s merger - showing how a combined Sainsbury’s and Asda will leap-frog Tesco:
Sainsbury’s chief executive, Mike Coupe, has been speaking to journalists.
He says he’s 100% confident that stores won’t need to close following the merger with Asda.
However, the regulators may insist that some stores are sold off. There are scores of places where Sainsbury and Asda stores are close by, giving the combined company a dominant position.
No plans to close any stores, but with 75 Asda stores in the same postcode district as a Sainsbury's store (excluding Sainsbury's Locals) we expect the CMA will demand disposals pic.twitter.com/W2oYyPbr2n
— Patrick O'Brien (@pat_gdretail) April 30, 2018
Mike Coupe adamant on media call this morning that the Sainsbury’s-Asda combination will result in no store closures. CMA will surely have other ideas
— Luke Tugby (@LukeTugby) April 30, 2018
Union: We won't accept job cuts
Britain’s unions are demanding guarantees for workers at Asda.
Tim Roache, general secretary of the GMB, fears that staff at the supermarket will pay the price as Sainsbury pursues the £500m of cost savings promised this morning:
“Hundreds of thousands of workers stand to be affected, and all know such announcements tend to be followed by management speak like ‘rationalisation’ in the name of ‘efficiency’. What that usually means is job losses or cuts to pay, terms and conditions which would be wholly unacceptable. Not least because ASDA workers have already voluntarily agreed to change their contracts to be more flexible in order to play their part and help their employer be more profitable.”
“It is quite right to be asking now in whose interests this proposed merger is being tabled. Is it workers and customers or the shareholders and speculators not happy with the hundreds of millions they already make in a year?”
Roache is also unhappy that the deal leaked over the weekend, leaving staff worried about their future:
“Imagine turning up to your Saturday afternoon shifts only to learn this news, with no word from your employer at all - just speculation in the media. Our members are concerned for their futures and angry they’ve been kept in the dark.”
“ASDA is hugely profitable supermarket, posting hundreds of millions in profit and backed by hundreds of billions from their US parent company, Walmart. Asda’s success has been built on the back of its workers and it is they who now need and deserve answers and reassurances about their futures - that’s the least they deserve, and the very least their union will be demanding.”
Spare a thought for the food suppliers here. #PremierFoods, #Greencore, #Cranswick and #DairyCrest shares all down this morning. #sainsburys #asda
— Paul Jarvis (@pajemiki) April 30, 2018
This deal will lead to job cuts and a painful squeeze on suppliers, warns John Colley, professor at Warwick Business School.
Colley predicts that staff will be “rationalised” (ie, laid off) at Sainsbury and Asda’s headquarters, in their regional management, and in their distribution operations.
“Ultimately there has to be job losses and the suppliers will have to pay through lower prices for the larger volumes they may see. Customers will see reduced choice and the current price war is likely to persist.
Colley also expects some stores will be sold off to rivals, although the largest supermarkets may not be in demand, and could close instead.
He also warns that the task of completing the deal could be a “significant distraction” for both companies.
This will not entirely be bad news for the competitors who should make share gains as a consequence.”
Richard Lim, chief executive, Retail Economics says this deal would create a powerful new competitor:
The combined retail group would create significant scale. It would enable better buying terms, the integration of Argos within Asda and drive operating efficiencies expected to deliver cost-savings of at least £500 million.
“If given the green light by the CMA [Competition and Markets Authority], it would be a game changer in the industry.
The potential tie-up could deliver price reductions across a range of products, putting it in a position to challenge Tesco and the discounters head-on.
That’s why Sainsbury’s shares are going like a rocket this morning, while Tesco is under the cosh.
Sainsbury's shares jump 20%
Boom! J Sainsbury’s shares have jumped by 20% at the start of trading, to their highest level since 2014.
That’s a huge move, suggesting that the City believes Sainsbury’s is getting an excellent deal -- as long as regulators don’t block the merger with Asda, of course.
Shares in rival supermarkets are falling in early trading.
Morrisons, currently Britain’s 4th largest supermarket, are down 3% at the bottom of the FTSE 100 leaderboard.
Tesco is close behind, down 2.5%.
Labour MP Barry Sheerman is concerned that this deal will damage competition:
Indisputable that competition will be reduced by a merger between Sainsbury & Asda? Whose idea was this & who made the first move? Was the Sainsbury family involved?
— Barry Sheerman (@BarrySheerman) April 30, 2018
Graham Hiscott of the Daily Mirror says the promise of big price cuts will rock the retail sector:
Really significant: "We expect to lower prices by (around) 10 per cent on many of the products customers buy regularly," says Sainsbury's/Asda. Will sent shockwaves across sector.
— Graham Hiscott (@Grahamhiscott) April 30, 2018
Neil Saunders, managing director of GlobalData Retail, reckons the deal is a win-win for Sainsbury and Walmart (which acquired Asda almost 20 years ago)
This is a good deal for Sainsbury’s but it’s a great deal for Walmart. It retains an interest in the UK, gets access to Sainsbury’s brand, and gets cash for more lucrative acquisitions.
— Neil Saunders (@NeilRetail) April 30, 2018
City traders like the sound of this deal.... there’s chatter that Sainsbury’s shares will jump once the stock market opens at 8am.
Sainsbury's called to open up 7-8% following plans to buy Walmart Inc.’s Asda in a £7.3bln deal via @RANsquawk
— Anthony Cheung (@AWMCheung) April 30, 2018
Asda’s CEO, Roger Burnley, is also dangling the promise of price cuts, once his business has been folded into Sainsbury’s:
“The combination of Asda and Sainsbury’s into a single retailing group will be great news for Asda customers, allowing us to deliver even lower prices in store and even greater choice.
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.
The PR war is already underway, with Sainsbury’s chairman David Tyler arguing that the deal is good for the UK:
As one of the largest employers in the country, the combined business will become an even greater contributor to the British economy. 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.”
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A few more key points:
- The combined company will own more than 2,800 stores (Sainsbury, Asda and Argos), and several of the UK’s most visited retail websites
- Sainsbury claims the deal will “deliver substantial value creation” for its shareholders. It estimates that earnings per share will grow by “double digits” in the second year after the deal goes through.
- Asda will continue to be run from Leeds with its own CEO (Roger Burnley), who will join the board of the combined business
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No store closures planned
This deal will deliver cost savings of around £500m per year, Sainsbury’s estimates.
That will fuel concerns that jobs will be lost, and suppliers will be squeezed hard.
However the company claims that that there are no plans to close stores.
Instead, it estimate that “buying benefits, opening Argos in Asda stores and operational efficiencies” will all cut costs.
Sainsbury's and Asda promise price cuts
Sainsbury and Asda are promising to cut prices on popular products by up to 10%, if their merger goes through.
They claim the deal will:
...enable investment in areas that will benefit customers the most: price, quality, range and creating more flexible ways to shop in stores and through digital channels, across Sainsbury’s, Asda and Argos.
We expect to lower prices by around 10% on many of the products customers buy regularly.
That’s a very bold commitment; good news for customers, but a real headache for rival retailers.
The agenda: Sainsbury-Asda tie-up; TSB problems rumble on
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
The big news this morning is that supermarket chains Sainsbury and Asda have just agreed to merge, in the biggest shake-up of Britain’s retail sector in years.
The deal will create Britain’s biggest supermarket chain - leapfrogging Tesco - with combined revenues of around £51bn.
In a statement released to the City, the two companies claim the merger will be “a great deal” for customers, staff, suppliers and shareholders of both businesses.
The retail sector is going through significant and rapid change, as customer shopping habits continue to evolve. This has led to increased competition across grocery, general merchandise and clothing, as customers seek ever greater value, choice and convenience.
Bringing Sainsbury’s and Asda together will result in a more competitive and more resilient business that will be better able to invest in price, quality, range and the technology to create more flexible ways for customers to shop.
However...it’s likely that suppliers will be worried that they could be squeezed by such a powerful new player. Staff, too, will have a lot of questions -- both in the stores, and in the back-offices and HQs.
Regulators will also have questions about whether the merger is in customers’ best interests.
We're creating a dynamic new player in UK retail - three well-known, trusted brands in Sainsbury's, Asda & Argos. We plan to operate a dual-brand strategy in grocery, with the scale to invest in the areas that matter most to customers: price, quality & more flexible ways to shop pic.twitter.com/YwPeJ67vxu
— Sainsbury's News (@SainsburysNews) April 30, 2018
Although it’s billed as a merger, Sainsbury’s is in the box seat. The deal values Asda at roughly £7.3bn, and Walmart (Asda’s current owner) will end up owning 42% of the combined business.
Walmart are also receiving £2.975bn in cash as part of the deal.
More details and reaction to follow....
Also coming up today
We’ll keep an eye on TSB’s ongoing IT problems, as some customers report that they still can’t get into their online banking accounts.
TSB online banking woes continue into second week https://t.co/vcB7xb9GD2 pic.twitter.com/kfVL4Ew5oK
— City A.M. (@CityAM) April 30, 2018
Advertising giant WPP is releasing its financial results, and outlining its new strategic plans following the shock departure of Sir Martin Sorrell earlier this month.
Stock markets are expected to rise, a little, as optimism following the Korea summit lingers.
Plus we get new cost of living data from Germany and America.
And the Bank of England’s chief economist, Andy Haldane, will speak at the launch of the Centre for Data Analytics for Finance and Macro at King’s College Business School
Here’s the agenda
- 10am BST: Bank of England chief economist, Andy Haldane, speaks
- 1pm BST: German inflation data for April
- 1.30pm BST: US PCE price index for March
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