Sainsbury's/Asda merger may not be an 'easy nut to crack'

Difficulties ahead of supermarkets' tie-up

Despite the initial positive reaction from investors and consumers, fund managers have warned the merger between Sainsbury's and Asda may encounter a number of difficulties due to the structural changes taking place in the UK food retail industry.

On 30 April Sainsbury's shares jumped 20.6% as the second and third largest UK supermarkets confirmed they would be combining to form one entity of 2,800 stores with 31% of the market share, more than market leader Tesco, which has 27.6%. The deal will see Sainsbury's pay £3bn to Asda parent Walmart and 42% of the combined shares, valuing Asda at approximately £7.3bn. Speaking at the Morningstar Investment Conference Mark Costar, co-manager of the £388m JOHCM UK Growth fund, warned "overcapacity" within the industry would continue to plague the combined business, referencing Morrisons...