Sainsbury’s third largest shareholders has become the first to publicly support the proposed £12 billion merger.
According to The Times, Invesco Perpetual’s UK equities fund manager Martin Walker said he thinks many counter arguments to the deal “defy logic”.
He added that the deal, which would create a newly combined entity with revenues of £51 billion, would allow it to go “toe-to-toe” with Tesco.
“There are some real positives here in this deal and when I appraise it financially the earnings accretion are huge,” Walker said.
“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.”
This comes just days after a study revealed around 300 stores could be forced to close if the deal were to be approved by the Competition and Markets Authority (CMA), far more than previously expected.
However, Walker says concerns about the negative effects of the merger have been exaggerated.
“Mike Coupe is putting his job and his reputation on the line with this deal, so why would he do that if he thought it wouldn’t get through competition regulators?” he added.
“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.
“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.”
When it was first announced at the end of April, Mike Coupe said the merger would lead to £500 million in cost savings and further investment to lower prices by around 10 per cent on everyday items.
The CMA has since confirmed that it was looking into the proposed deal and was in the “pre-notification” phase, which means it was in the midst of gathering information from Sainsbury’s and Asda before a formal inquiry could be launched.