A genuinely game-changing deal in the supermarket sector was the main highlight on an otherwise quiet Monday morning.
Seemingly coming out of nowhere, Sainsbury's (LON:SBRY) and Asda confirmed the weekend’s reports that they intend to merge, a move that would see the green-orange hybrid leapfrog Tesco (LON:TSCO) as the UK’s biggest supermarket in terms of market-share. The deal would also see Walmart (NYSE:WMT), which owns Asda, end up with nearly £3 billion in cash and a 42% stake in the newly formed company.
Obviously regulators are going to have a LOT to say about such a landscape-shifting deal, meaning there’s a long way to go before this bonkers but potentially brilliant marriage becomes a reality. Investors are already signalling how they feel about the merger, however; Sainsbury’s rocketed as much as 20% higher after the bell, sitting between £3.15 and £3.20 for the first time in a few months shy of 4 years. Its peers were less pleased: Tesco dropped 3.7% as it mulled over losing its long-held status as supermarket top dog, while Morrisons (LON:MRW), which arguably would be more hurt by the move, was down 1%.
Things were less dramatic elsewhere. The FTSE only got a slight rub from the supermarket shake-up, climbing 0.3% after the bell. Yet even that relatively meagre rise was enough to see the FTSE to a fresh high, with the UK index at 3 month peak of 7525.
The FTSE maybe a bit disappointed that it couldn’t eke out a bit more growth this Monday, given Sainsbury’s surge and the state of sterling. Suffering from last Friday’s GDP-shaped dovish blow, the pound shed another 0.2% against both the dollar, with cable lurking around a 2 month nadir of $1.375, and the euro, where it fell to a 6 week low of €1.135.
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