`Meagre terms' fuel hopes of rival Asda bid

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The Independent Online
KINGFISHER AND Asda yesterday unveiled further details of their planned pounds 18bn merger though the City still focused on the meagre terms for Asda shareholders and speculated that a rival bid may yet emerge.

Although Asda shares fell 5p to 193.75p this is still above the 186p price implied by the Kingfisher merger terms, indicating a higher bid. Kingfisher's shares closed 44p lower at 796p. One of Asda's institutional investors said: "We do not regard the terms as lavish but then this is a merger not a contested bid."

Wal-Mart of the US or Carrefour of France are seen as the most likely counter-bidders. However, both Asda and Kingfisher deny their merger is a defensive move to block Wal-Mart's entry into the UK market.

In a delayed stock market announcement that forced the abandonment of the planned press conference yesterday, Asda and Kingfisher said the merger would yield pounds 100m of cost savings of which half would come in the first year. The deal would create a new retailing force with combined sales of pounds 17bn, the two companies said.

Sir Geoff Mulcahy, Kingfisher's chief executive who will also run the merged group, said: "This is another important step on the road to being a global winner. There is an excellent strategic fit between the two companies, which reinforces our market leading positions and financial strength."

About half the expected cost savings will come from securing better terms with suppliers, with further savings in distribution and administrative expenses. The group would move to a global procurement strategy, modelling itself on the Wal-Mart set-up. The benefits would be greatest in the pounds 4.5bn of sales where Asda and Kingfisher overlap, such as in confectionery and children's clothing.

The statement confirmed that Asda's George label of clothing would be sold through Woolworths outlets. Asda's non-food ranges would be strengthened by products from its Woolworths, Superdrug and Comet chains.

The group would exploit new opportunities in digital technology such as Internet shopping and digital television channels.

The statement made much of the enlarged group's financial muscle with net assets of pounds 5bn, operating cashflow of pounds 1.2bn and low gearing. It said this strength would enable it to play a full part in the consolidation of Europe's DIY and electrical markets, where Kingfisher has already expanded with the Darty electricals acquisition and the merger of its B&Q chain with Castorama of France. The deal would enable the group to seize growth opportunities in markets such as Poland, Taiwan, Brazil and Singapore "where DIY or electrical operations are under development," the statement said.

One analyst said. "It is supposed to be a merger but everything you read about it makes it look like a takeover. It is all about Kingfisher. There is very little here about taking Asda abroad."

Asda released a trading statement yesterday showing that its like-for- like sales, stripping out new store openings, has risen by 4.7 per cent in the second half to 10 April. This was well ahead of the industry average and even better than Tesco's 4 per cent underlying sales growth announced last week. The merger will be scrutinised by the European competition authorities in Brussels because of its size.

Under the terms of the deal Kingfisher shareholders will control two- thirds of the equity, with Asda shareholders holding the remainder. The terms are 0.2263 shares in Kingfisher for every Asda share held.

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