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OFT tells Asda to sell 47 stores in the UK

The Office of Fair Trading is demanding that Asda sell 47 Netto stores to appease competition concerns, a higher level of disposals than the UK arm of Walmart had expected when it struck the £778m deal to buy the discount food retailer.

The OFT said the disposals were necessary because competition could be “substantially reduced” in some local areas where the two chains overlapped.

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Asda said the number of stores to be sold was “at the high end of its expectations”. The grocer must also find suitable buyers before the OFT will clear the sale of the stores. The consumer affairs watchdog will take into account local competition before approving the deals.

Asda said it had begun discussions with possible buyers and was “confident we can meet the [OFT’s] obligations”. It expected to complete the conversion of the Netto stores by late summer 2011 as planned.

Because the OFT’s decision had been delivered three weeks later than expected, there would not be sufficient time to open its first pilot Netto store before Christmas. Instead, it would be ready in the first quarter of next year.

Asda agreed in May to buy the Netto stores from Denmark’s Dansk Supermarket, in an effort to cement its position as Britain’s second-biggest supermarket and stem a slow-down in sales.

Clive Black, an analyst at Shore Capital, said he had expected the OFT to require that Asda sold 25-30 stores.

“Asda will be a bit disappointed that they have got to sell more stores than they wanted,” he said. “Having said that, food retail shops are a much sought-after asset at the moment. In that respect, I would have thought there would be quite a degree of interest in the stores that Asda has to sell.”

Justin Scarborough, an analyst at Royal Bank of Scotland, said the 47 stores could be worth about £180m. The level of disposals raises questions about whether the benefits of the deal will be reduced. But the grocer said it was confident of lifting sales from the Netto stores.

Source : Andrea Felsted - FT.com

23 September 2010
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