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Walmart's Merger Will Focus Its International Spend

The wide-moat giant will combine Asda Group and Sainsbury, creating the largest grocer in the U.K.

Wide-moat

In our view, this deal makes strategic sense for Walmart, as the combined business should be poised to more effectively withstand intense competitive pressures (from the hard discounters, other traditional operators, alternative channels such as meal kit providers, and e-commerce distributors including Amazon and Ocado) given the enhanced scale that it will enjoy, which could include exerting more leverage over suppliers. We also view the combination as offering modest diversification from a geographic exposure, given Sainsbury’s customer exposure is tied to the Southern portion of the U.K. region while Asda holds its position in the North, offering the combined firm national reach it didn’t have before. In addition, we believe that the tie-up enables Walmart to focus its investments on higher return opportunities, including building out its presence in more attractive international markets. In this vein, Walmart has been rumoured to be interested in acquiring a stake in Flipkart (India’s largest online retailer) a deal that could top $20 billion, depending on the size of its stake.

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About the Author

John Brick

Equity Analyst

John Brick, CFA, is an equity analyst for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers retail defensive names, including large general merchandise retailers, sporting good manufactures, and grocery/distribution names.

Before joining Morningstar in 2017, Brick worked at Arkansas-based Stephens Inc. where he covered various consumer companies. Prior to that, he worked at Chicago-based Vilas Capital, where he was a generalist on a long-short hedge fund. Brick began his career at Northern Trust as a private equity analyst.

Brick earned a bachelor’s degree in finance, with minors in economics and decision sciences, from Miami University’s Farmer School of Business. He holds the Chartered Financial Analyst® designation.

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