Markets

City analysts react to game-changing Sainsburys-Asda merger

The FTSE 100 has made slight gains on opening, rallying after Sainsbury's confirmed plans to merge with Walmart-owned retailer Asda.

Shares in the British supermarket chain soared more than 20 per cent after the deal was announced.

Analysts in the City have reacted positively to the deal, indicating it may bring a welcome boost to the struggling UK retail sector.

Calling the merger “genuinely game-changing”, Spreadex financial analyst Connor Campbell said the move “would see the green-orange hybrid leapfrog Tesco as the UKs biggest supermarket in terms of market-share.”

Read more: Sainsbury's shares soar on Asda merger tie-up details promising price cuts

Jasper Lawler, head of research at London Capital Group, said the deal, if agreed to and approved by the Competition and Markets agency, “could change the landscape of the sector dramatically creating a more powerful rival to market leader Tesco.”

David Madden, market analyst at CMC Markets UK also pointed towards the difficulties facing Tesco:

"Sainsburys and Asda are the second and third largest supermarkets in the UK, and should the deal go ahead the new company would knock Tesco off the top spot," said Madden. "Morrisions, who are already languishing behind in fourth place, would become a distant third in the market share ranking."

Read more: Sainsburys and Asda mega-merger reignites store wars

In the wake of the deals announcement, shares in competitor Tesco fell 3.7 per cent before rallying slightly. Shares in food suppliers Premier Foods, Greencore, Cranswick and Dairy Crest all fell after the announcement as well.

Spare a thought for the food suppliers here. #PremierFoods, #Greencore, #Cranswick and #DairyCrest shares all down this morning. #sainsburys#asda

— Paul Jarvis (@pajemiki) April 30, 2018

The Sainsburys deal would see American retailer Walmart, which owns Asda, end up with nearly £3bn billion in cash and a 42 per cent stake in the newly formed company.

However, analysts cautioned that the merger is far from being a done deal, and the market will be highly sensitive to future developments.

“Obviously regulators are going to have a LOT to say about such a landscape-shifting deal,” said Campbell. “Theres a long way to go before this bonkers but potentially brilliant marriage becomes a reality.”

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