J Sainsbury PLC, in a bid to save its threatened £7.3 billion merger with Walmart Inc.'s Asda Stores Ltd., has told the U.K. competition authority that the proposed combination of the country's second- and third-largest supermarket chains would deliver £1 billion worth of lower prices to consumers by the third year after the deal closed, as well as net synergies of £500 million and improved earnings.
Sainsbury's detailed the figures in a March 19 statement to the Competition and Markets Authority, or CMA, a response to the watchdog's warning in February that it could block the deal after its investigation concluded that it would be harmful to shoppers. The CMA said the transaction would lead to higher prices for consumers, fewer and lower-quality products, and higher fuel prices at the companies' fuel stations.
In its statement, Sainsbury's argued that the CMA's provisional analysis contained significant errors that had generated an unreasonably high level of concern.
To offset that concern, Sainsbury's said it was committed to delivering £1 billion of lower prices annually by the third year after the deal was completed. It also said it would invest £300 million in the first year of the merger and a further £700 million over the next two years, which would help reduce prices by about 10% on everyday items.
"We are happy to be held to account for delivering on this commitment and to have our performance independently reviewed and to publish this annually," said Sainsbury's CEO Mike Coupe and Asda CEO Roger Burnley in the joint statement.
Sainsbury's said the cost savings would allow it to deliver a low double-digit return on invested capital and double-digit EPS accretion by the end of the second full financial year. The company plans to also cap its fuel gross profit margin to no more than 3.5 pence per liter for five years. In another commitment, the supermarket chain said it would move to pay small suppliers within 14 days.
The two companies hope to create cost savings by securing lower purchasing prices from suppliers; putting Sainsbury's Argos stores, a catalog retailer, into Asda; and jointly buying shared goods and services and reducing central costs. "We hope that the CMA will properly take account of the evidence we have presented and corrected its errors," the companies said in the statement.
The CMA's final decision is due by April 30. In trading on the London Stock Exchange, Sainsbury's shares rose 2.6% to 241.03 pence.