City advisers could share as much as £100 million in fees from a blockbuster merger of supermarket giants Sainsbury’s and Asda.
The shock potential tie-up is the latest multi-billion pound deal to hit the Square Mile, which is in the grip of merger mania. It will trigger large paydays for bankers, lawyers, and PR advisers.
A merger of Sainsbury’s and Asda, which would have a combined market value of more than £15 billion, brings the total value of deals currently in the system to more than £90 billion.
Shock tie-up: A merger of Sainsbury’s and Asda would have a combined market value of more than £15 billion
Sainsbury’s is in advanced talks with Walmart, Asda’s US owner, over a merger of the UK businesses, combining annual sales of around £50 billion.
Sainsbury’s confirmed the reports, which emerged yesterday, and said it would be making a further announcement on Monday morning at its banker UBS’s premises in London, giving more details on the transaction.
Bankers typically take between 1 per cent and 2 per cent commission on deals and reap large fees even if a merger or takeover falls through.
City sources said the merger could see their fees top £100 million. However a banker involved in Tesco’s £3.7 billion takeover of wholesaler Booker Group, which triggered £85 million in fees, said the sums for Sainsbury’s and Asda are likely to be in the same ballpark.
Morgan Stanley and UBS are advising Sainsbury’s, with Rothschild working on the deal for Walmart.
The merger is the latest in a wave of deals involving UK firms, including pay-TV giant Sky, drugs firm Shire, engineering firm GKN, shopping centre group Hammerson and electronic trading outfit NEX Group.
Sky is at the centre of a complex bid battle.
US cable giant Comcast, which owns Universal Studios, last week made a formal £22 billion bid for Sky. The offer came two months after it initially revealed its interest in challenging Rupert Murdoch’s 21st Century Fox, which has been trying for years to buy the 61 per cent of Sky it does not already own. Fox itself is under offer from Disney.
Wall Street consultancy Freeman and Co estimates advisers will net £270 million from those various pursuits.
Rare diseases specialist firm Shire, which is based in Dublin but listed in London, last week agreed to a £46 billion takeover by Takeda, a smaller Japanese drugs firm, although some in the City are still sceptical about whether the deal will get over the line. Engineer GKN, which failed to repel an £8 billion bid from corporate raiders Melrose, spent £107 million on bankers in its abortive defence, it emerged last week.
Shopping centres group Intu has walked away from a £5 billion takeover of property company Hammerson after investors expressed their disapproval of the plan.
French rival Klepierre has also dropped out from making a firm offer, but bankers will still cash in from their work on potential deals over several months.
Former Tory party Treasurer Michael Spencer’s NEX Group has agreed to a £3.9 billion takeover by Chicago’s CME Group.
Both firms are paying advisers nearly £110 million for the deal.
If a deal between Sainsbury’s and Walmart for Asda is agreed, it could yet face competition hurdles.
Analysts said increased rivalry from discounters Aldi and Lidl as well as online players such as Amazon is behind Sainsbury’s and Asda’s plans to merge.
Some analysts see the potential merger as part of a fightback by Asda boss Roger Burnley and Sainsbury’s chief Mike Coupe.
Experts say the belief that low interest rates will not go on much longer is fuelling the deal frenzy in the City – before any rate rise makes the cost of raising financing more expensive.