The proposed merger between popular food retailers Sainsbury and Asda was announced in April 2018 and has been headline news in the press since. The deal was to supposedly result in a guaranteed 10% cut in food prices, greater efficiency and an improved level of customer services.
The Competition and Markets Authority (CMA) did not agree, subsequently blocking the merger. In a report published in April this year, the CMA concluded that a merger between the two retail giants would result in higher prices, a reduction in quality of foods, and poorer shopping experience for its consumers.
If the merger had gone ahead, the merged business would have overtaken Tesco as the UK’s largest food retailer, with an estimated 26.7% share of the UK grocery market.
The merger was intended to be a share sale, with Walmart (Asda’s parent company) transferring all its shares in Asda to Sainsbury in return for £2.975 billion and a 42% share in the merged company (although Walmart would only have a 29.9% voting right). It was also the intention that the two companies would continue to operate as a separate brand.There are typically two types of corporate sales; share and asset sales.
On a share sale, ownership of the target company is transferred to the buyer, along with all the assets and liabilities of the target company. We rather colloquially call a share sale – warts and all.
In contrast, on an asset sale, the buyer picks and chooses which assets and liabilities of the seller are to be transferred. This means the buyer can effectively cherry pick which assets it wishes to buy.
There are advantages and disadvantages to both share and asset acquisitions, depending on the particular circumstances and the commercial deal envisaged.
In order to structure a merger or acquisition which is most beneficial to your commercial deal and circumstance, professional advice should be sought. We have extensive experience in buying and selling companies, and would welcome the opportunity to get to know you, and your business.