Kingfisher PLC's Defunct Deal with ASDA Sparks Market Reaction

Strategic Insights -

Kingfisher PLC's ill-fated agreement to acquire ASDA Group PLC has sparked a reaction in the market, with investors questioning the decision of the British retailer to pursue the deal. The potential acquisition of ASDA by Kingfisher would have limited the entry of Wal-Mart Stores Inc. into the British market, but the possibility of this scenario appears to have driven Wal-Mart's decision to update its timeline and pursue a higher offer for ASDA. The move by ASDA to back out of the deal with Kingfisher has led to a decline in shares of the latter, with some analysts suggesting that this may be due to concerns over Kingfisher's strategy and the potential threat posed by Wal-Mart's entry into the UK market.

Key Takeaways:

  • The Kingfisher-ASDA deal was met with opposition from investors, who were concerned that the acquisition would hinder Kingfisher's expansion in Continental Europe.
  • Wal-Mart's decision to update its timetable and pursue a higher offer for ASDA was driven by the possibility of Kingfisher's acquisition limiting its entry into the British market.
  • ASDA's backing out of the deal with Kingfisher has led to a decline in Kingfisher's shares, with some analysts suggesting that this may be due to concerns over Kingfisher's strategy and the potential threat posed by Wal-Mart's entry into the UK market.
  • Neil Cumming, a fund manager specializing in British equities for Aberdeen Asset Management, believes that Kingfisher looks "silly" after being jilted by ASDA and that the company's stock has been overreacted to.
  • James Bryce, a manager of British equities for Investec Guinness Flight, thinks that Kingfisher is a "very well-run company with good brands" and would buy the stock below £17 (about $11.11).
  • The market's reaction to the news that ASDA is jilting Kingfisher suggests that investors have concerns about Kingfisher's strategy and the potential threat posed by Wal-Mart's entry into the UK market.

Statistics:

  • The shares of Kingfisher, which owns several retail businesses in Britain and France, declined to levels below where they traded before its deal with ASDA was announced.
  • The shares of Kingfisher were trading at £17.33 on Friday, while James Bryce called for the stock to be bought below £17 (about $11.10).
  • The U.K. retail environment is expected to face tougher competition with the entry of Wal-Mart and ASDA into the market.
  • According to Neil Cumming, ASDA and its new partner "are quite likely to attack areas that so far ASDA has been less well developed in," which could make life difficult for other supermarket operators.

Sources:

  • The Money Report, May 29
  • Aberdeen Asset Management
  • Investec Guinness Flight
  • Next PLC
  • Boots PLC
  • Dixons PLC