Wal-Mart Invades Britain With Buyout of Asda Chain

In its biggest acquisition ever, Wal-Mart Stores Inc. announced last week that it had bought Great Britain’s third-largest supermarket chain.

After months of speculation, the world’s largest retailer announced a cash offer of $10.8 billion for Asda Group Plc, which has 12 percent of Britain’s market share with 196 stores in England and 33 in Scotland.

On the same day, Wal-Mart bought $1.24 billion of Asda stock, apparently to secure its grasp on the British retail chain, which sells groceries, apparel and general merchandise.

The move came only two months after a meeting between British Prime Minister Tony Blair and Bobby Martin, head of Wal-Mart’s international division. The meeting caused the price of British supermarket shares to jump in heavy trading on speculation that Wal-Mart might be a counter-bidder for Asda.

The Wal-Mart bid snatched Asda from the jowls of Kingfisher Plc, England’s sixth-largest retailer, which entered into an agreement in April to merge with Asda. But the Wal-Mart bid was 18 percent higher than that of Kingfisher, which owns Woolworth’s as well as drug, electronics, music and home-improvement store chains in Britain, France and Taiwan. The attempted merger with Asda would have been Kingfisher’s first foray into the grocery business. Kingfisher CEO Sir Geoffrey Mulcahy says he won’t get into a bidding war with Wal-Mart, but his offer for Asda still stands.

Until June 14, Wal-Mart officials hadn’t commented on the rumored acquisition of Asda, and analysts believed Wal-Mart was too preoccupied with its 95 stores in Germany to attack Europe from another front so soon. But, with the Kingfisher merger in the works, Wal-Mart apparently thought the time was appropriate.

Asda had $13.2 billion in sales for 1998 and $702 million in operating profit. The purchase will more than double the amount of sales in Wal-Mart’s international division, which had $12.2 billion in sales for 1998 and $551 million in operating profit.

Asda stores, on average, are 50 percent larger than its competitors in Britain, giving Wal-Mart the ability to transition those units into Supercenters without having to add additional space, according to a research report from Morgan Keegan & Co. in Memphis.

But at an average of 70,000 SF, the Asda stores would be small by Supercenter standards (Wal-Mart’s Supercenters can be up to 202,000 SF.).

“They could convert them into Supercenters, but they couldn’t offer as wide an assortment as in the U.S.,” says Asma Usmani, a retail analyst with Edward D. Jones & Co. in St. Louis.

Lower Prices Ahead

Usmani and Brian Nagel, an analyst with A.G. Edwards & Sons of St. Louis, say Wal-Mart has no immediate plans to convert Asda stores to Wal-Mart stores.

“I think the advantage Asda is going to get is global marketing,” Usmani says. “They will have access to Wal-Mart’s network of vendors.”

Usmani says the change will mean better logistics and lower prices for Asda customers.

Usmani says the inventory at Asda stores is similar to that of Wal-Mart Supercenters. In addition to having price “rollbacks,” Usmani says Asda imitates Wal-Mart in several other respects, including having a “greeter” at the door.

Asda had the cheapest prices of the top three supermarket chains in Britain, Usmani says, but Asda’s prices are about 20 percent higher than Wal-Mart’s. Britain’s top two chains are Tesco Plc and J. Sainsbury Plc.

Wal-Mart’s culture of everyday low prices will be something new for Great Britain, Usmani says.

“The prospect of Wal-Mart’s arrival on these scandalously high-priced shores is as welcome as rain in the desert,” the Daily Mail of London said in an editorial.

Usmani says the United Kingdom is a logical jumping off point for American companies looking to branch into Europe. But Wal-Mart already has 95 hypermarkets in Germany, having purchased the 74-store Interspar chain for about $660 million last year and the 21-store Wertkauf chain in 1997 for an estimated $880 million.

With annual sales of $137 billion, Wal-Mart has announced plans to expand globally, and European analysts believe France may be Wal-Mart’s next target. Analysts believe Wal-Mart may be eyeing Carrefour, the 361-store Paris-based hypermarket chain.

“The sense I got from talking to management is, with this acquisition, they’ve got enough on their plate for now,” Nagel says.

The merger deal was completed June 12 and announced on June 14. On the same day of the announcement, Wal-Mart said Bobby Martin, a Wal-Mart veteran of 15 years who has headed its international division since 1993, would be leaving the company to pursue personal business interests.

Martin moved Wal-Mart from one nation to eight in the six years he headed the division.

John Menzer, Wal-Mart’s chief financial officer, will take over as head of the international division.