UK Investment Guides Loader

Chief Exec Says Asda IPO ‘2 or 3 Years Away’

supermarket

The May collapse of Wallmart-owned Asda’s proposed merger with Sainsbury’s saw the supermarket chain’s management announce that they would explore the possibility of an IPO as an alternative way forward. However, despite 2019 proving to be a favoured year for IPOs, Asda will not rush to join the fray. Yesterday Roger Burnley, Asda’s chief executive, intimated that while an Asda IPO is indeed still considered as Wallmart’s best option to sell down its exposure to the UK, it is most likely “2 or 3 years away”.

Asda is the UK’s third largest supermarket chain by market share, 14.9%, and has 633 supermarkets employing around 145,000 staff. A merger with Sainsbury’s, which is the second largest supermarket in the UK with a market share of 15.3%, just ahead of Asda, would have seen the combined entity almost certainly overtake Tesco as the country’s biggest supermarket group. Tesco currently holds 27.3% of the market and despite the fact that a merger would have required Asda and Sainsbury’s to sell off a significant number of supermarket locations, the combined group would have been expected to slightly exceed that.

In the end, the Competition and Markets Authority put a stop to the deal on the grounds that it believed it would reduce competition to a degree that would ultimately see prices increase for consumers. Restructuring the deal in a way that would have gained the regulator’s approval would have meant more compromise than either Asda or Sainsbury’s were ready to accept and it was called off. Both companies expressed their disappointment with the regulator’s judgement on the grounds they believed they had demonstrated that the economies of scale that would have been achieved would have been passed on to consumers through lower prices. An average of 10% reduction in prices had been promised had the merger been rubber stamped.

It was never particularly likely that an IPO would have been rushed through in 2019, with little time to prepare but 2020 had been considered a possibility. But Asda has now set 2022 as a more realistic target. In the meanwhile, Mr Burnley says the company will continue to pursue its medium and long term ‘growth targets’, which he stated will not be influenced by an eventual change of ownership from Wallmart to shareholders. These include an £80 million investment in cutting prices and £100 that will be spent on refitting existing supermarket locations.

Other plans include an ‘instant delivery’ pilot in partnership with Just Eat. The two companies are testing a 30-minute express delivery service in London and Leicester that will cover 100 staple groceries products. 




Risk Warning:

Please remember that financial investments may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.

There is no obligation to purchase anything but, if you decide to do so, you are strongly advised to consult a professional adviser before making any investment decisions.

You can tell friends this post!