Merger talks between United Kingdom supermarket chains Sainsbury's and ASDA (Walmart)

Merger talks between United Kingdom supermarket chains Sainsbury's and ASDA (Walmart)

A major uncertainty surrounding any combination would be whether the move secures approval from Britain's competition regulator, the Competition and Markets Authority (CMA), given that the deal would effectively create a duopoly.

Asda has about a 15.6% share of the United Kingdom grocery market, Kantar estimates, a figure that has been steadily eroding for the past two years, while Sainsbury's has around 15.8%.

If the deal goes ahead, Walmart, which has owned Asda since 1999, will receive Sainsbury's shares in exchange for Asda's circa 600 supermarkets, becoming the company's biggest shareholder. It said they will make a further announcement at 0600 GMT on Monday. If it decides the new entity would have too much power in the market, the authority could block a deal or force the companies to sell stores.

Sainsbury's, England's second-biggest grocery chain, on Saturday said it is in advanced discussions about a merger with Wal-Mart Stores Inc's British unit, Asda Stores Ltd, as retailers adjust to swiftly changing shopping habits.

It involved launching Argos concessions in Sainsbury's shops, encouraging shoppers to buy Argos products online, pick them up in-store and hopefully buy something in the supermarket along the way.

Roger Burnley, who took over as Asda CEO in January, is a former Sainsbury's executive, working under Coupe.

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News of the potential deal also sparked concern among workers' unions, which demanded urgent meetings with Sainsbury's and Asda chiefs.

Monteyne says the two retailers have different fortes that will enable them to improve the other's performance: "Asda has been struggling in the United Kingdom to deal with both the threat of discounters and the growth of e-commerce, particularly in non-food", he says.

One option is Sainsbury's absorbing Asda stores, while Walmart takes a large stake in the combined group. In April 2016, they announced a £1.4 billion takeover of Argos, which led to better than expected results the following Christmas.

"They've extracted a lot of knowledge out of that, and this may be an instance where at this point they may be deciding to focus on higher-growth global markets given the competitive landscape in the United Kingdom", she said.

"Recent experience, with the rise of Aldi and Lidl triggering a supermarket price war, supports the case for a less concentrated groceries sector - not a more concentrated one", he said.

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