First among equals

Supermarket giant Asda this week insisted its union with largerket chain Asda. retail rival Kingfisher was a partnership of equals, despite admitting that the deal will be accounted for as a Kingfisher takeover.

Kingfisher, which is by far the larger of the two groups, will also impose its end of January year-end and its dividend policy on the #17.3bn combined operation.

Asda finance director Tony De Nunzio also looks likely to lose out. Although the two companies insisted exact roles have yet to be defined, his Kingfisher counterpart Philip Rowley was named in the list of board members for the new group, while De Nunzio was conspicuously absent.

De Nunzio was unavailable for comment, but a spokesman said: ‘We are two very strong organisations. This is a partnership of equals.’

The apparent domination of Kingfisher over accounting issues arising from the deal could also be bad news for Asda auditors Ernst & Young.

PwC enjoys fees in excess of #1m a year for the audit of the Kingfisher empire, while Ernst & Young earns just #200,000 for its annual Asda audit. Both retail giants also pay their accountants lucrative fees for other services.

PwC, for example, earned #3.6m from Kingfisher in non-audit services in the year to 31 January 1998.

To account for a deal as a merger, the two parties must be roughly equal in size. But shareholders in Asda – which has a market capitalisation of #5.4bn – will end up receiving only a third of the shares in the new group. Kingfisher is worth #11.9bn.

The two companies said they would undertake an annual impairment review of the value of goodwill arising from the merger.

The two retailers are hoping to achieve savings of #100m a year as a result of the deal. The decision to join forces will create a retail supergiant bringing together leading high street brands such as Asda, Woolworths, Superdrug and B&Q.

Analysts predicted the deal could spark a wave of consolidation throughout the European retail sector.

Related reading

aidan-brennan kpmg