30th Apr 2018 07:47
LONDON (Alliance News) - J Sainsbury PLC said Monday it had agreed a proposed merger deal with Walmart Inc-owned supermarket rival Asda which could create a retail giant worth in excess of GBP13 billion and with revenue of GBP51 billion.
Sainsbury's also announced its full-year results two days early.
The FTSE 100 grocer said it had agreed a deal which values Asda at around GBP7.3 billion on a debt-free, cash-free and pension free basis. As part of the deal, Walmart will receive 42% of the issued share capital in the combined business - though will hold no more than 29.9% of voting rights - and receive GBP2.98 billion in cash.
The equity market capitalisation of Sainsbury's on Friday stood at GBP5.92 billion.
Under the deal, the combined company - which will have a 2,800 store network - will see Sainsbury's Chief Executive Officer Mike Coupe, Chairman David Taylor and Chief Financial Officer Kevin O'Byrne retain their roles.
No store closures are planned as a result of the combination, the firm added.
Sainsbury's said the deal will see it retain both its own brand alongside the more value-focused Asda brand.
The deal is expected to result in earnings before interest, tax, depreciation and amortisation synergies of "at least" GBP500 million. The synergies will mostly come from buying benefits from scale, opening of Argos concessions in Asda stores and operational efficiencies.
Sainsbury's explained the deal will create a "highly cash-generative" firm which would enable a "faster de-leveraging profit" after completion.
Asda was said to have generated its fourth consecutive quarter of positive like-for-like sales growth in the quarter ended March. In 2017, Asda like-for-like sales advanced 2.6% to around GBP22.2 billion. Operating profit in 2017 for Asda was said to be around GBP720 million, down from GBP845 million the year prior.
"This is 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," Sainsbury's CEO Coupe said. "It will create a business that is more dynamic, more adaptable, more resilient and an even bigger contributor to the UK economy.
"Having worked at Asda before Sainsbury's," Coupe added, "I understand the culture and the businesses well and believe they are the best possible fit. This creates a great deal for customers, colleagues, suppliers and shareholders and I am excited about the opportunities ahead and what we can achieve together."
In a separate announcement Monday, Sainsbury's reported full year profit fell on exceptional costs despite like-for-like revenue growing as it hiked its final dividend to keep the full year distribution in line with the prior year. Sainsbury's had been due to report on Wednesday.
For the year ended March 10, pretax profit narrowed to GBP409 million from GBP503 million the year prior.
This was despite sales rising to GBP31.74 billion from GBP29.11 billion the year before. Like-for-like sales - excluding fuel - grew 1.3% in the year, whilst including fuel it rose 1.4%. Fourth quarter like-for-like growth, however, slowed to 0.9% excluding fuel from 1.1% the quarter before and expanded to 1.8% including fuel from 1.2% the quarter before.
Profit performance was hurt by GBP180 million in exceptional costs in the period compared to GBP78 million the year prior. These included GBP85 million in costs associated with the integration of its Argos business and separation of Homebase. A further GBP85 million was associated with restructuring costs and GBP38 million on the transition of its Sainsbury's bank business to a new banking platform.
In April 2016, Sainsbury's acquired Argos and Homebase-owner Home Retail Group in a GBP1.2 billion deal.
Underlying pretax profit -excluding exceptional costs - was modestly higher at GBP589 million from GBP581 million the year prior.
Sainsbury's proposed a 7.1 pence per share final dividend, up from 6.6p the year prior. For the full year, however, the dividend remained flat at 10.2 pence per share.
"We have accelerated the rate of change and innovation across the group and more customers are choosing to shop with us than ever before as a result," Coupe explained. "I am pleased to announce an increase in underlying profits before tax to GBP589 million, driven by delivery of Argos synergies, efficiency savings across the group and improving food margin trends."
"We are focused on making Sainsbury's a destination of choice," Coupe added. "We are clearly differentiated by the quality of our food and we have recently invested a further GBP150 million to lower prices. General Merchandise and Clothing are both performing ahead of the market and, in response to great customer feedback and financial returns, we are opening Argos stores in our supermarkets faster than we originally planned. We will also deliver GBP160 million EBITDA synergies by March 2019, six months ahead of plan."
"We continue to find ways to simplify our business and reduce costs," Coupe continued. "We have exceeded our original three year GBP500 million target and delivered a total of GBP540 million in savings. In addition, we will deliver at least GBP500 million of cost savings over the next three years to 2020/21."
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