The failed merger between FTSE 100 supermarket J Sainsbury PLC (LON:SBRY) and Walmart Inc’s (NYSE:WMT) Asda could end up costing the former over £1bn in a combination of admin charges and a battered share price.
While the total costs of the merger are as yet unclear, some insights can be found in Sainsbury’s first year results in November, when it booked a £17mln charge that it said was related to the merger.
READ: Sainsbury's and Walmart's Asda abandon merger after competition watchdog rejects deal
Given another five months have elapsed since then, a similar total could see the overall cost ring in at around £34mln, all of which has been wasted.
Sainsbury’s will likely provide some more clarity at its full-year results on 1 May, although given the collapse of the merger investors will likely be paying more attention to where the company plans to go from here.
However, according to analysts at Jefferies the results are unlikely to bring much cheer as they are forecasting a 1.5% fall in like-for-like sales for the fourth quarter.
Share price hammered
Aside from the potential charges, Sainsbury’s has seen its share price slump from an initial high on news of the merger talks last year and is now languishing below levels seen even before the discussions were unveiled.
Based on its close price of 269.8p on 27 April 2018, the last trading day before the potential tie-up was announced, Sainsbury’s shares have fallen around 19.4%, effectively wiping £1.2bn off its market value.
The decline has ultimately left that shares trading around lows not seen since July 2016, and also not far off their 30-year lows.
However, this fall cannot be solely attributed to the merger, as Sainsbury’s has been struggling to increases sales among the fiercely competitive grocery market, as well as trying to cut costs and save £200mln this year.
READ: Sainsbury's sales fall over key Christmas trading period amid tough competition
As the merger was expected to provide cost synergies, the firm could be back to getting its scissors out again to make up the difference.
The issue of how Sainsbury’s will improve its existing proposition will also loom large again as discounters continue to take bites out of its market share.
In the latest industry report from Kantar Worldpanel, Sainsbury’s share of the grocery market fell 0.5 percentage points to 15.3% after sales declined 1.8% in the 12 weeks to March 24, while German discounters Aldi and Lidl continued to increase market share, rising 0.7ppts to 8.0% and 0.3ppt to 5.6%, respectively.
The boot for Coupe?
Following the blockage of the merger by regulators, Sainsbury’s chief executive Mike Coupe could now find himself in hot water, and potentially facing the sack.
Russ Mould, investment director at AJ Bell, said that Coupe would nee a radical Plan B to save the business, otherwise his days would be numbered.
READ: Sainsbury's needs Plan B to save the business after CMA rejects Asda merger, say analysts
“Coupe was caught singing ‘We’re in the Money’ following the initial news that Sainsbury’s planned to merge with Asda. Today you’re more likely to hear Bonnie Tyler blasting down the aisles of Sainsbury’s supermarkets.
“Coupe is holding out for a hero: they’ve got to be strong and they’ve got to be fast otherwise Sainsbury’s problems will just get worse.”
In late-afternoon on Thursday, Sainsbury’s shares were 4.6% lower at 216.1p.