LONDON (CNNfn) - Wal-Mart, the world's largest retailer, stepped up its international shopping spree Monday when it agreed to pay 6.7 billion pounds ($10.8 billion) for Asda, Britain's third-largest supermarket chain - topping UK retailer Kingfisher's merger bid in the process.
Kingfisher conceded, saying it did not plan to improve its $10 billion stock offer. Asda's board has recommended Wal-Mart's cash offer.
Separately, Wal-Mart said Bob Martin will step down as head of its $12.5 billion international division and be replaced by John Menzer, executive vice president and chief financial officer. Martin, 50, said he is leaving the company to pursue other business interests, adding that it was time for a change and that "people should not misread this decision."
Analysts said Wal-Mart's bid for Asda will turn heads in the business community.
"Retailers, not only in Britain, but right across Europe this morning were sitting up and taking notice," said Richard Hyman, chairman of the London-based retail consulting firm Verdict. "There are going to be more deals
and they're going to have to be bigger deals."
Wal-Mart's entry to the U.K. market would be on a far greater scale than previous international forays into Germany and Asia, and poses a huge challenge to the established British retailers.
The offer sent a tremor through the U.K. retail sector. Asda (ASSD) shares soared 18.6 percent to close at 218 pence, while Kingfisher (KGF) fell 47 to 776 pence.
Shares in the two largest supermarket companies were also down. Tesco (TSCO) fell 12.75 to 178 and Sainsbury (SBRY) fell 18.50 to 372.
"If Tesco and Sainsbury had a head-to-head battle, they'd probably lose," said Mike Godliman, Verdict's director.
"They should really play to their strengths," he said, pointing at the loyal customer base and the successful diversification of non-food business.
The bid shocked retail observers two months after Wal-Mart appeared to turn its back on U.K. acquisitions.
Wal-Mart had been linked with No. 4 retailer Safeway (SFW) and, in an attempt to replicate the scale of its U.S. stores, also looked at sites occupied by the Toys "R" Us (TOY) chain.
Pile it high, sell it cheap
Godliman said Asda offered a better opportunity to replicate Wal-Mart's "pile it high and sell it cheap" strategy. Asda's 219 stores have an average size of 41,600 square feet, compared with 21,000 square feet among Safeway's 476 stores.
The Wal-Mart offer represents a premium of 19.2 percent over Asda's share price at Friday's close and 45.7 percent over the price before it announced the merger with Kingfisher in April.
Asda's management would remain to run the company under Wal-Mart's ownership.
Sales at Wal-Mart's international operations soared 25 percent last year, but still accounted for just 7 percent of total revenue. However, the company has been sitting on a huge cash pile, and with 1998 sales of $137 billion is more than twice the size of Europe's largest retailer, Germany's Metro (FMEO).
Wal-Mart's market capitalization is $190 billion --more than its 10 closet European competitors combined. It runs 3,600 stores and it is so big in the United States, Canada and Mexico that it must look overseas for growth.
Vast resources give Wal-Mart the clout to buy out almost any rival, but over the years it has expanded mostly by building its own stores. This is strategy it is pursuing in Asia and Latin America -- but it will not work in Europe, where land is scarce and regulatory red tape is abundant, analysts said.
Wal-Mart (WMT) closed up 3/16 to 42-7/8 in U.S. trading, according to preliminary data.
-- from staff and wire reports