Asda to sell Netto stores amid competition fears

Asda must sell a quarter of Netto’s UK stores in order to gain clearance for its £778m acquisition of the discount chain, it emerged today.

The retailer, which is owned by US group Wal-Mart, agreed a deal in May to buy 194 Netto stores, which it plans to convert to its Asda brand by next summer.

But Asda will have to sell 47 of the newly-acquired stores – at the high end of its expectations – in order to satisfy the Office of Fair Trading (OFT), which has investigated local competition concerns raised by the merger.

Asda said once the deal completes around 1,000 jobs will be created in the Netto stores. As a consequence of the OFT’s intervention, Asda now plans to open its first converted store in the first quarter of 2011, rather than before Christmas.

As well as creating new jobs, the deal could lead to some job losses as the group pledged to keep on the “majority” of staff at two Netto distribution centres and a store service centre.

Netto’s distribution centre at South Elmsall in Yorkshire will be retained with Asda expecting to accommodate the majority of employees. It will close Netto’s other distribution centre at Daventry, in Northamptonshire, but expects to keep the majority of staff at other centres nearby.

The group said it will look at migrating some of the Netto store service centre functions but could not commit to anything at this stage.

Asda, which currently owns 374 stores, is aiming to boost its smaller format store portfolio and said the Netto outlets will be added to a new division set up for supermarkets smaller than 25,000 square feet.

Netto, owned by Danish group Dansk Supermarked, employs 3,500 staff in the UK. The average size of its stores is 8,000 sq ft.

The OFT said it was concerned competition could be “substantially” reduced in around one in four local areas where there were overlapping Asda and Netto stores.

The regulator said Asda must find suitable up-front buyers for a number of the stores it sells, before the merger can be completed. It has not disclosed the locations of the 47 stores which must be sold by Asda.

Amelia Fletcher, senior director of mergers for the OFT, said: “The OFT is confident that, if agreed, this package of remedies will safeguard competition in 47 such areas, to the benefit of local shoppers, while allowing the remaining store purchases to go ahead.”

Asda is working on a five-year strategy to secure its position as the number two in food and leader in non-food sales, with plans to accelerate openings of smaller stores and launch more Living general merchandise outlets.

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