J Sainsbury PLC

Major shareholder in Sainsbury's backs proposed Asda merger

Martin Walker, UK equities fund manager at Invesco Perpetual, is the first major investor to publicly back the proposed £12bn merger of Sainsbury's and Asda

The competition watchdog is investigating the deal

The third largest shareholder in J Sainsbury PLC (LON:SBRY) has voiced its support for the supermarket group’s plan to merge with Walmart Inc’s (NYSE:WMT) Asda.

Martin Walker, UK equities fund manager at Invesco Perpetual, said the merger would help Sainsbury’s go “toe-to-toe” with market leader Tesco PLC (LON:TSC) and would deliver “huge” financial benefits for the company.

“There are some real positives here in this deal and when I appraise it financially the earnings accretion are huge,” he told The Times.

“The synergy costs are conservative and could be much bigger, but what I am most interested in is that the deal would appear to offer returns in excess of Sainsbury’s cost of capital.”

Walker is the first major investor to publicly back the proposed £12bn merger.

Cost synergies of merger

In April, Sainsbury’s announced it had agreed to merge with Asda in a deal that would see it overtake Tesco as the UK’s leading supermarket. The companies expect the deal to create cost synergies of £500mln and have promised to pass the savings onto consumers. 

“The buying synergies are merely from harmonising the buying book with suppliers and not pushing down on suppliers and I am struggling to see what the problem is with that,” Walker said.

“This is a useful deal for Asda, too, and why wouldn’t there be scope to cut prices for consumers? Some of the counter-arguments to this deal seem to defy logic.”

Competition concerns 

The deal is being investigated by the Competition and Markets Authority, which in June published a report on submissions about the proposed merger from supermarket groups, wholesalers, suppliers, trade associations, not-for-profit organisations with an interest in the groceries sector, local government representatives and members of the public.

Some of the concerns that were raised were the possibility that the merger could lead to higher prices and reduce choice for customers.

READ: Sainsbury's-Asda merger raises competition concerns, CMA reveals

Under the proposed deal, Asda will receive £2.975bn in cash and a 42% equity stake in the combined group with just under 30% of the voting rights. Sainsbury’s and Asda plan to continue to run as two separate supermarkets. 

Quick facts: J Sainsbury PLC

Price: £1.97

Market: LSE
Market Cap: £4.35 billion

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