Sainsbury's & Asda: will it go ahead?

The supermarkets employ about 342,000 people in more than 1,000 stores across the country

Shares in Sainsbury's rocket after it reveals details of the tie-up which it says will result in 10% price cuts on many items.

The company will retain both the Sainsbury's and Asda brands and there are no plans to close any of its more than 2,800 stores, the companies said Monday.

However, the merger would have to be approved by the Competition and Markets Authority (CMA).

The two companies have different cultures and appeal to different customers, with London-based Sainsbury's strong in own-brand products, and Asda, headquartered in Leeds, northern England, focused on price.

Sainsbury's said customers would see benefits including price cuts of 10% on numerous products that customers buy regularly.

The Forum of Private Business (FPB) has called on Sainsbury's to provide assurances to its supply chain, as the supermarket chain announces it has agreed terms with Asda to merge the two companies. Sainsbury's market value, before trading opened on Monday, was £5.9bn. They closed 14.5% higher.

"Both Sainsbury's and Asda have significant stakes in the clothing market, with forecast share for 2018 at 2.1% and 3.5% respectively", she adds.

Unions have voiced fears that the merger would threaten tens of thousands of jobs.

Yesterday, Sainsbury's agreed to buy Walmart's United Kingdom unit, Asda, for 7.3 billion pounds ($14.2b) in cash and stock in a deal that would create Britain's largest supermarket chain and marks a seismic shift in the country's grocery market.

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However, given that the deal is not expected to be completed until autumn 2019, is it all a bit too soon for such confidence?

The move underscores the intense competition in Britain's grocery market as discounters take market share from traditional chains such as Sainsbury's and Tesco.

However, investments in price dragged down operating profit to £720 million from £845 million.

Kevin O'Byrne, chief financial officer at Sainsbury's, told CNBC's "Squawk Box Europe" that the merger "allows us, particularly in a very competitive market online and with discounters, to give much greater value to our customers and that's very important".

"This is a transformational opportunity to create a new force in United Kingdom retail, which will be more competitive and give customers more of what they want", said Sainsbury's chief executive Mike Coupe.

"It will create a business that is more dynamic, more adaptable, more resilient and an even bigger contributor to the United Kingdom economy".

Richard Lim, the chief executive of research group Retail Economics, described the deal as a "game changer" in the industry.

"Asda will continue to be Asda, but by coming together with Sainsbury's supported by Walmart, we can further accelerate our existing strategy and make our offer even more compelling and competitive".

Meanwhile, Mamequa Boafo, senior analyst, retail, at GlobalData notes there is no doubt the proposed merger will lead to the consolidation of the supplier base of both parties, which will assist in leveraging margins across both businesses.

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