Supermarket merger to create largest UK chain

Walmart has agreed to sell its British unit, Asda, to local rival Sainsbury's in a £7.3 billion (US$10.1 billion) deal.

The cash and stock deal will also reshape Britain's supermarket industry. It combines the No. 2 and No. 3 supermarket chains, with a total 31.4 per cent share of the market that would put it ahead of the current leader, Tesco, according to data from Kantar Worldpanel.

"This is a transformational opportunity to create a new force in UK retail," Sainsbury's CEO Mike Coupe said in a statement. Shares in the company jumped as much as 21 per cent in London.

The move highlights the competition in Britain's grocery market as discounters take market share from traditional chains such as Sainsbury's and Tesco. The deal combines Asda's strong presence in northern England with Sainsbury's larger operation in the south, creating a company with more than 2,800 stores across the country and pound51 billion of annual revenue.

Walmart will receive pound4.3 billion worth of Sainsbury's stock and pound2.98 billion in cash for Asda. Walmart will own 42 per cent of the combined company but has only 29.9 per cent of the voting rights. Sainsbury's chairman, CEO and chief financial officer will run the company.

Sainsbury's said it will retain both the Sainsbury's and Asda brands, and it has no plans to close stores.

The deal is expected to result in cost savings of at least pound500 million, and Coupe said he expects to lower retail prices by as much as 10 per cent.

The combined company will be "designed for a new era" of retailing, bringing scale in clothing and general merchandise, Coupe said.

Britain's Competition and Markets Authority said it will "likely" assess whether the deal could reduce competition and choice for shoppers. The regulator has the power to require Sainsbury's to close stores in areas where the combined company would have too much market dominance.

The Labour Party's business spokeswoman, Rebecca Long-Bailey, has already called for an investigation of the proposed deal.

The merger risks "squeezing what little competition there is in the groceries market even further," Long-Bailey told the BBC on Saturday when the news of a possible deal first emerged.