Walmart Sells Majority Stake in Asda

Supermarkets play such a vital role in peoples’ everyday life, with the four main players in the supermarket space being Tesco, Morrison’s, Sainsbury’s and Asda. The total industry is valued at 179.1 billion GBP as consumers are consistently reliant on the many incorporated businesses. Across the country, Asda is a household name; it would be difficult to find somebody who hasn’t heard of Asda or know where a nearby store is located since Asda operates 199 superstores across the country. Asda generated 22.92 billion GDP in the prior fiscal year, which demonstrates this strong stance as a major player in the industry.

In 1999, Walmart, a U.S. based grocery business, strategically acquired Asda in 1999 for 10.8 billion USD and became a majority shareholder in the company in an attempt to grow its international presence. Walmart had dominated the U.S. supermarket industry for many years and thus, had acquired Asda do the same in the U.K.

However, this merger has not been as successful as anticipated. Asda failed to become a market leader like Walmart has in the U.S. and has seem unexciting growth rates in its time. For instance, Asda only has a 14.5% market share in the U.K., whereas Walmart is estimated to have a 26% share in the U.S. market, suggesting this takeover has been unsuccessful. Furthermore, Walmart has had to adapt to new innovations in its home market in recent years. Walmart have had to rethink its business plans with the growth of Amazon, and the switch to online shopping for many customers. Therefore, it makes sense for the world’s largest retailer to now reduce its international presence and focus on its core business – Walmart – to maintain its position as market leader.

Walmart has tried selling Asda in recent years. A Sainsbury’s and Asda merger was arranged and near closing last year, which would have cleared Asda from Walmart’s balance sheet. However, Britain’s Competition and Markets Authority blocked this move on account of anti-competitive measures, and thus, this deal instantly broke down.

Since then, Walmart has found a new buyer after multiple bidding rounds involving different potential buyers. Britain’s billionaire Issa brothers and private equity group TDR Capital have bought Asda from Walmart in a deal worth 8.6 billion GBP on a debt-free and cash-free basis which is expected to close in H1 2021. This move will see Walmart still retain a minority stake in Asda, and Asda will have British ownership for the first time in over two decades.

The supermarket space is currently a tough market for the big players, with the ongoing pandemic and the rise of Amazon generating challenging competition whilst the growth of online commerce is catalysed. The current pandemic is extremely uncertain with regards to future lockdowns as the number of daily cases are rising, leading to questions over future lockdown policies. Firms without a significant online presence will struggle throughout this period, and if consumers decide they wish to buy groceries online in the future, this may pose further threats.

The new owners of Asda have committed to investing over 1 billion GBP into Asda to accelerate the delivery of low prices, in response to the rise of ALDI and LIDL. With the Issa brother’s reputation being fairly well regarded for convenience and growth, this may see Asda navigate the market and catch up to market-leader Tesco and outperform discount supermarkets in the future.

By Josh Davies