Monday, June 14, 1999 Published at 17:07 GMT 18:07 UK
Business: The Company File
Wal-Mart bids for Asda
The world's biggest retailer, Wal-Mart, has stunned financial markets in the UK with a £6.72bn ($10.8bn) agreed offer for supermarket group Asda.
The US-based Wal-Mart group is known for operating on tight profit margins - to the benefit of consumers and with catastrophic consequences for many of its competitors.
Richard Hyman, analyst at Verdict Research, called Wal-Mart's move a "nightmare coming true" for UK retailers. "They're scared of Wal-Mart's size - it's of a size that's beyond the experience of everyone else".
Until today, both Asda and Wal-Mart had denied rumours of any link-up between the two companies.
Wal-Mart's senior vice president, Don Soderquist, said the takeover discussions between Wal-Mart and Asda had "only developed in last week to 10 days".
If the bid is successful, it would bust the plan of UK retail conglomerate Kingfisher to merge with Asda.
This tops the value of Kingfisher's share-exchange deal, which had valued each Asda share at just over 186p.
Asda's board is now backing out of that deal, saying that it is no longer recommending that shareholders should accept Kingfisher's offer.
The board said the Wal-Mart offer was "fair and reasonable".
Wal-Mart's secret admirer
Asda chief executive Allan Leighton said: "We have always admired Wal-Mart and believe that this offer is a terrific compliment to all our colleagues in the business."
Only six weeks ago Mr Leighton had insisted that the proposed merger with Kingfisher was not a defensive measure to keep Wal-Mart out of the UK.
Now he said that "customers could feel confident that our obsession with permanently low prices is Wal-Mart's priority too", he added.
Mr Leighton and his management team will continue to run the business under Wal-Mart's ownership, Asda said.
Wal-Mart, whose presence in Europe is currently limited to a German hypermarket chain, said the acquisition of Asda will further its European expansion plans and provide Asda with access to additional capital for new openings.
"We are delighted to be entering the UK market through Asda", said Wal-Mart senior vice president, Don Soderquist.
"We have the highest respect for its management team and their colleagues who have done a great job over the last few years."
The news made a dramatic impact on the London Stock Exchange. Asda saw its share price leap almost 20% to 218p.
Wal-Mart is actively buying Asda shares in the market. The company's UK adviser, Dresdner Kleinwort Benson, is conducting the purchases.
"It's going on at the moment," a Dresdner spokesman said. "We will buy what stock is available."
The invasion by the the US giant unnerved investors in rival companies. Shares in Tesco slumped nearly 7% to 178p, while Sainsbury fell 5% to 370.5p. Kingfisher gave up 5.7%, Boots shed 4.7% and Storehouse was off 8.8%.
But Safeway, the smallest of the big four UK supermarkets, rose nearly 3% to 252p after weekend newspaper speculation that it was being courted by US suitors.
Sizing them up
Wal-Mart currently operates 3,601 stores, employs more than 910,000 people world-wide, and sales amounted last year to $137.6bn (£85.7bn) - equivalent to a tenth of Britain's total economic output.
Asda would be its first acquisition in the UK. The company is the third-largest supermarket chain in the UK, with annual sales of over £8bn from 229 stores.
Asda says that it has outperformed its main competitors in like-for-like volume growth in each of the last six years.
Asda employs more than 78,000 full and part-time staff.
Kingfisher owns the DIY chain B&Q, more than 800 Woolworth shops, Superdrug, Comet and MVC stores in the UK and has recently moved aggressively into France, where it owns Darty shops, electronics retailer BUT and Castorama DIY stores.
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