Company Of The Week: Asda Group

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The Independent Online
WAL-MART agreed to pay pounds 6.7bn for supermarket giant Asda Group, whose large stores and selection of goods closely mirror its own. The long-anticipated arrival in the UK of the world's largest retailer - whose name is synonymous with low prices - will not just unsettle food retailers but the whole sector.

Wal-Mart's bid topped by 18 per cent a rival offer from Kingfisher. It will be the largest acquisition ever of any retailer by a foreign company and the biggest yet in Wal-Mart's push to expand across Europe. Wal-Mart became the dominant US retailer by offering deep discounts on items from food to clothing. It wants to duplicate that success abroad, buying stores in Europe rather than building them to avoid government red tape and high land prices.

"If Wal-Mart is serious about a long-range expansion strategy in Europe, then they had to have Asda," said Clive Black, an analyst at CCF Charterhouse. Asda's 229 stores are 50 per cent larger than its rivals and offer shoppers everyday low prices - a system based on Wal-Mart's US strategy. The American retailer plans to use its inventory tracking and other technology systems in Asda's stores to cut costs.

Some investors said they're concerned the purchase - and plans to expand outside the US - will hurt Wal-Mart's profit margins. "My indications out of Europe are that the economies there are getting weaker, not stronger," said analyst Donald Brown of the Ohio Public Employees Retirement System. "And $10.8bn is a big chunk to bite off at once."

In the UK, Wal-Mart is expected to undercut even the lowest discounters, making retailers such as Sainsbury and Safeway more vulnerable to takeovers. "Wal-Mart is going to come over here and take them to the cleaners," said Tristan George, at Carr Sheppards Crosthwaite. That should spur European retailers to speed up cross-border buys, considered too complex and risky just a few years ago.