The FTSE 100 food retailer’s shares opened some 20% higher on Monday morning at 320p before settling back down at 310p.
Meanwhile, its major rivals Tesco and Morrisons saw their shares dive lower during morning trading, with both down around 4% at 228p and 230p respectively.
The proposed deal would create a £5.9bn grocery retail giant, bigger than the current market share leader Tesco, and with combined revenues of £51bn based on the firms’ 2017 annual results.
If approved by the regulator, the deal is expected to complete in the second half of 2019.
Asda’s parent company, American retailer Walmart would own 42% of the combined business and receive £2.98bn of cash, valuing Asda at £7.3bn. However, the American retailer will not hold more than 29.9% of the total voting rights in the combined business.
Sainsbury’s boss Mike Coupe and CFO Kevin O’Byrne will oversee the combined business, with assistance from current chairman David Tyler.
Asda will continue to be run from Leeds under CEO Sean Clarke, who will join the group operating board of the merged group.
Two representatives from Walmart will also sit on the board of the new group.
Game changer
Helal Miah, investment research analyst at The Share Centre, called the deal “a game changer for the industry” and “the largest and most significant” piece of news to come out of the sector for some time.
While he said the merger is positive news for Sainbury’s shareholders, addressing the firm’s geographical weakness in the North and offering huge potential cost savings and increased buying power, he cautioned that the food retailer’s margins will still be under pressure.
“With the costs synergies, the hope is that squeezed margins that the retailer has experienced over the years can be improved again, but we fear that we will never see margins levels of old coming back as the retail industry is fundamentally changing,” said Miah.
“With the jump in that share price today, and a degree of uncertainty around regulatory approvals and whether rival groups will kick up a fuss, we maintain our ‘hold’ recommendation on Sainsbury.”
