Sainsbury's chart

Mega-merger fever grips the UK supermarket sector as Sainsbury’s announces a shocking merger with Asda (owned by parent company Walmart). The deal will see Sainsbury’s pay Walmart a combination of shares and cash totaling £7.3 billion. This has sent reverberations throughout the sector and the combined entity will leapfrog current UK market leader, Tesco, to have an expected market share of 31.4%. Investors are taking this news extremely positively as Sainsbury’s shares are 20% higher to a recent high of 325p. Indeed, the deal looks impressive, but I can only see serious implications that need to be addressed. Fake Watches

With an entity this big, the competition commission will be looking into the deal with great scrutiny. Unions, the combined workforce, will likely see redundancy on both sides and, linked to the first point, the consumers: could the new entity decrease the likelihood of competition for products? Again, this will not be viewed positively by the competition commission.

If I look at the reason for the deals, I first come to Amazon. Clearly, the company is on the march and looking for market share in new areas of retail. Its expertise is online, yet the company will also need a physical presence. By having a joint entity, Amazon could protect itself from the likely competition that would entail. In addition, for at least 10 years now, despite numerous huge marketing campaigns, neither Sainsbury or Asda have been able to take the top spot from Tesco in terms of market share and, in reality, haven’t increased their own market share by more than 3% over the period.

Jordan Hiscott,
Chief Trader

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The above-mentioned market views and content reflect only the opinion of the author, not that of ayondo. This service is for informational purposes only and does not constitute advice or investment advice.

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