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U.K. retailers in $10B deal
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April 16, 1999: 9:50 a.m. ET
Kingfisher set to bid for Asda; to create U.K.'s largest retail group worth $30B
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LONDON (CNNfn) - U.K. retail giant Kingfisher confirmed Friday that it is poised to take over the country's third-largest supermarket chain, Asda.
The all-stock bid, which the two companies are still discussing, would form the U.K.'s largest retailer worth almost $30 billion, and moves Kingfisher into the top 10 retailers in the world.
"This is Kingfisher management turning themselves into Wal-Mart," said Richard Lloyd-Owen, head of the consumer group at consultant Deloitte Touche.
Wal-Mart (WMT), worth around $216 billion, would still dwarf the new company, but analysts believe Kingfisher is aping the U.S. behemoth's strategy.
But Kingfisher denies emulating the world's largest retailer. "That's one way of interpreting it, but it's not right," said Michael Hingston, director of corporate affairs. "We have been pursuing a strategy to gain benefits of scale for some time now and the (Asda deal) is simply a pursuit of this strategy," he added.
Asda: sold for $10 billion?
Kingfisher owns a wide range of retailing operations ranging from B&Q, an out-of-town warehouse format selling home improvement products and Superdrug, a discount drug store chain.
The company also has a general retail chain called Woolworth, and is planning to roll out a trial mega-store concept using this brand name, but selling products from across the group, later this year. "We think it is something the customer will like," said Hingston.
Lloyd-Owen said the Asda takeover cuts out years of development, giving Kingfisher the mega-store format and sites it needs. "This is consistent with Kingfisher's strategy and is a way to short-cut a 10 year development program," he added.
Envy of the world?
Financial analysts are similarly upbeat. "The deal would create an extremely powerful group with both mega-store and warehouse formats that should be the envy of the world," said Nick Bubb, retail analyst at SG Securities in London.
Kingfisher's discount drugstore chain
The paper deal also looks good for Kingfisher shareholders. "This would be earnings enhancing from the start," said Bubb, who estimates that it could increase pro-forma earnings per share by 18 percent this year. This could rise to over 20 percent after cost-savings and synergies kick in.
Kingfisher (KGF) shares fell 3.6 percent to 843 pence after initially rising 3 percent. Bubb believes investors will see the benefits of the deal when both companies give more details on April 19. Kingfisher was forced into issuing a statement Friday after news of the deal leaked into the market.
Kingfisher's paper is highly-rated, while Asda shares, along with its supermarket rivals, have been depressed recently. The U.K. competition authorities are currently investigating the pricing practices of the big four supermarket chains.
It is unclear how the current investigation would affect the take-over.
Talks failed last year
The two groups broke off previous merger talks in May last year.
The all-stock deal, valuing Asda at around 6 billion pounds ($9.6 billion), would give Kingfisher shareholders 66 percent of the enlarged group, the company said, and Kingfisher boss Geoffrey Mulcahy will head the new group if the deal proceeds.
The confirmation by Kingfisher sent shares in other supermarket groups soaring in London. Tesco (TSCO) surged over 8 percent, Sainsbury (SBRY) rose 5.5 percent and Safeway (SFW) jumped 4.6 percent. Asda (ASSD) stock rocketed 13 percent to 200 pence.
-- by staff writer Mark Odell
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