Asda and Kingfisher call off talks

By Nigel Cope

Associate City Editor

MERGER talks between Asda and Kingfisher broke down at the weekend after the two sides failed to reach agreement on a pounds 13bn deal. Talks were said to be "completely at an end" and, although neither side would rule out a return to the negotiating table, insiders said it was unlikely.

Asda, however, claimed the talks had only been exploratory "low key" discussions about how the two companies might have worked together in the UK on areas like clothing, entertainment and pharmacy. It said merger terms had not been discussed.

"They never were merger talks. They were really discussions about ways of working together and considering those areas of overlap between us," a spokeswoman said. The suggestion was that the talks centred on the possibility of Asda selling its "George" clothing range through Woolworths with branches of Superdrug and Comet opening in Asda superstores.

However, other sources indicated that the discussions were specifically about a merger of the two companies which would have created a new retail powerhouse with interests spanning food, clothing, DIY, electricals and pharmacy. It is understood that management roles were discussed and that Sir Geoff Mulcahy, Kingfisher's, chief executive, would have been executive chairman of the combined group. Allan Leighton, Asda's chief executive, was likely to take the chief executive position.

"I can see Allan and Geoff working together and I can see synergies between the two groups," said Nick Bubb, retail analyst at SG Securities. "It would be a merger of equals but in a way it is surprising because Kingfisher has a very solid strategy of going into electrical retailing and DIY in Europe." Mr Bubb said that linking up with Woolworths would be a way for Asda to fulfil its stated ambition of making its George clothing label the UK's number two clothing brand after Marks & Spencer.

Talks between Asda and Kingfisher started about two weeks ago with the initial contact being made between Sir Geoff Mulcahy and Archie Norman, Asda's chairman. Mr Norman used to work with Sir Geoff as Kingfisher's finance director until joining Asda in 1992. Though both sides claim the other made the initial approach, the subsequent talks were held between Sir Geoff and Mr Leighton. The final meetings were all-day talks in London on Friday.

Though neither side would comment on the reason for the collapse of the talks, it is understood Asda was worried by complications that could have arisen because of the level of integration between Kingfisher's UK and international businesses.

A merger between the two would have created a huge business which would have been Britain's second largest retailer after Marks & Spencer. Kingfisher has more than 2,000 stores spread across a variety of formats including Woolworths, B&Q, Comet and Superdrug. It owns the Darty electricals business in France and the MVC and Entertainment UK music and video businesses. Kingfisher's shares have soared over the last three years after a radical boardroom overhaul three years ago.

Asda has become a big success story in the supermarket sector after teetering on the brink of collapse in 1992. It has now established itself as Britain's third largest supermarket group after Tesco and Sainsbury's. Its sales growth is the best in the industry.

As well as cross fertilisation of products in each other's stores, a merger would have generated cost savings through greater buying power in certain sectors like clothing, entertainment and pharmacy. The two businesses have similar trading philosophies as Kingfisher pioneered the "every day low prices" approach. They are also of similar size. Kingfisher is the larger company in terms of market value, with a capitalisation of pounds 7.2bn compared with Asda's pounds 5.5bn. But Asda is the larger in sales with turnover of pounds 7bn against Kingfisher's pounds 5.8bn.

Kingfisher's acquisition activity has been centred on the Continent most recently, with deals in France and Germany. Asda, though, has the look of a company in search of a deal, according to some analysts. It looked at buying the Welcome Break service stations in a pounds 400m deal a few years ago. Then last year news broke that it in talks with Safeway about a possible pounds 10bn merger, although the tie-up foundered on concerns that the deal would be subjected to a long and disruptive investigation by the competition authorities.

A deal with Kingfisher would be unlikely to encounter regulatory problems. However, there might be problems over the different cultures of the two businesses and who might take the top jobs.

Asda has a very informal management style with open plan offices in Leeds and first-name terms among managers. Kingfisher is a more formal company with a London head office that delegates much of day-to-day operations to the individual businesses. At board level, some analysts say it would be difficult to see Sir Geoff or Mr Leighton wishing to play second fiddle to the other in an enlarged group.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Arts and Entertainment
Under the skin: Sarah Kane in May 1998
theatreThe story behind a new season of Sarah Kane plays
Arts and Entertainment
Preening: Johnny Depp in 'Mortdecai'
filmMortdecai becomes actor's fifth consecutive box office bomb
Sport
Bradford City's reward for their memorable win over Chelsea is a trip to face either Sunderland or Fulham (Getty)
football
News
Lars Andersen took up archery in his mid thirties
video
Voices
Focus E15 Mothers led a protest to highlight the lack of affordable housing in London
voicesLondon’s housing crisis amounts to an abuse of human rights, says Grace Dent
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Client Services Manager - Relationship Management - London

£30000 - £32000 per annum + benefits : Ashdown Group: A highly successful, int...

Recruitment Genius: Credit Controller / Customer Service

£18000 - £20000 per annum: Recruitment Genius: This rapidly expanding business...

Guru Careers: In-House / Internal Recruiter

£25 - 28k + Bonus: Guru Careers: An In-house / Internal Recruiter is needed to...

Recruitment Genius: Tax Assistant

Negotiable: Recruitment Genius: A Tax Assistant is required to join a leading ...

Day In a Page

Woman who was sent to three Nazi death camps describes how she escaped the gas chamber

Auschwitz liberation 70th anniversary

Woman sent to three Nazi death camps describes surviving gas chamber
DSK, Dodo the Pimp, and the Carlton Hotel

The inside track on France's trial of the year

Dominique Strauss-Kahn, Dodo the Pimp, and the Carlton Hotel:
As provocative now as they ever were

Sarah Kane season

Why her plays are as provocative now as when they were written
Murder of Japanese hostage has grim echoes of a killing in Iraq 11 years ago

Murder of Japanese hostage has grim echoes of another killing

Japanese mood was against what was seen as irresponsible trips to a vicious war zone
Syria crisis: Celebrities call on David Cameron to take more refugees as one young mother tells of torture by Assad regime

Celebrities call on David Cameron to take more Syrian refugees

One young mother tells of torture by Assad regime
The enemy within: People who hear voices in their heads are being encouraged to talk back – with promising results

The enemy within

People who hear voices in their heads are being encouraged to talk back
'In Auschwitz you got used to anything'

'In Auschwitz you got used to anything'

Survivors of the Nazi concentration camp remember its horror, 70 years on
Autumn/winter menswear 2015: The uniforms that make up modern life come to the fore

Autumn/winter menswear 2015

The uniforms that make up modern life come to the fore
'I'm gay, and plan to fight military homophobia'

'I'm gay, and plan to fight military homophobia'

Army general planning to come out
Iraq invasion 2003: The bloody warnings six wise men gave to Tony Blair as he prepared to launch poorly planned campaign

What the six wise men told Tony Blair

Months before the invasion of Iraq in 2003, experts sought to warn the PM about his plans. Here, four of them recall that day
25 years of The Independent on Sunday: The stories, the writers and the changes over the last quarter of a century

25 years of The Independent on Sunday

The stories, the writers and the changes over the last quarter of a century
Homeless Veterans appeal: 'Really caring is a dangerous emotion in this kind of work'

Homeless Veterans appeal

As head of The Soldiers' Charity, Martin Rutledge has to temper compassion with realism. He tells Chris Green how his Army career prepared him
Wu-Tang Clan and The Sexual Objects offer fans a chance to own the only copies of their latest albums

Smash hit go under the hammer

It's nice to pick up a new record once in a while, but the purchasers of two latest releases can go a step further - by buying the only copy
Geeks who rocked the world: Documentary looks back at origins of the computer-games industry

The geeks who rocked the world

A new documentary looks back at origins of the computer-games industry
Belle & Sebastian interview: Stuart Murdoch reveals how the band is taking a new direction

Belle & Sebastian is taking a new direction

Twenty years ago, Belle & Sebastian was a fey indie band from Glasgow. It still is – except today, as prime mover Stuart Murdoch admits, it has a global cult following, from Hollywood to South Korea