Sainsbury’s-Asda merger still viable even if hundreds of stores lost, say banks

Sainsbury's Asda CMA
// UBS says Sainsburys-Asda could deliver ROI of 10% even with the loss of 132 stores
// Bank of America Meryl Lynch added “even a high disposal number” wouldn’t affect the deal
// Estimates of 200-300 store losses “challenge both the economics and rationale of the merger”

Sainsbury’s could comfortably absorb the loss of at least 132 stores as part of its proposed merger with Asda and still achieve a return on its investment, according to UBS.

UBS, Sainsbury’s house broker, has said that despite speculation that the CMA could demand hundreds of stores be shed in order for the merger to go ahead, the deal would still be a viable move for the respective companies.

“Assuming zero disposal proceeds, merger economics can absorb at least circa 132 remedy stores and potentially dozens more (given flexiblity in gross-to-net price investment), whilst still achieving targeted return on invested capital of more than 10 per cent,” UBS said.

This was echoed by the Bank of America Meryl Lynch: “Even a high disposal number would not be a risk to the deal, in our view.”

As part of an initial probe into the proposed tie up, the CMA highlighted 463 locations where the two brands overlapped and posed a “realistic prospect of a significant lessening of competition”.

According to UBS market speculation that 200 or 300 stores could be forced to close “appear to challenge both the economics and rationale of the merger”.

The merger of the country’s second and third largest supermarkets would topple Tesco’s longstanding reign as the UK’s biggest grocer my market share.

Sainsbury’s-Asda’s revenues would also be £51 billion thanks to network of 2800 Sainsbury’s, Asda, Habitat, Argos and George stores.

When it was first announced at the end of April last year, 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.

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