30 April 2018

Proposed combination of J Sainsbury plc and Asda Group Limited

Further to the announcement made on 28 April 2018, J Sainsbury plc ("Sainsbury's") and Walmart Inc. ("Walmart") are pleased to announce that they have agreed terms in relation to a proposed combination of Sainsbury's and Asda Group Limited ("Asda"), a wholly owned subsidiary of Walmart, to create an enlarged business (the "Combined Business") (the “Combination”).

Key highlights

The Combined Business will create a dynamic new player in UK retail with an outstanding breadth of products, delivered through multiple channels. Enhanced scale and a strengthened balance sheet will deliver a great deal for customers, colleagues, suppliers and shareholders of both businesses. The retail sector is going through significant and rapid change, as customer shopping habits continue to evolve. This has led to increased competition across grocery, general merchandise and clothing, as customers seek ever greater value, choice and convenience. Bringing Sainsbury's and Asda together will result in a more competitive and more resilient business that will be better able to invest in price, quality, range and the technology to create more flexible ways for customers to shop.

The Combination will result in Walmart holding 42 per cent1 of the issued share capital of the Combined Business and receiving £2.975 billion of cash (subject to customary completion adjustments), valuing Asda at approximately £7.3 billion2 on a debt-free, cash-free and pension-free3 basis. At the time of completion of the Combination, Walmart will not hold more than 29.9 per cent of the total voting rights in the Combined Business4.

The Combination will:

Create one of the UK’s leading grocery, general merchandise and clothing retail groups, with combined revenues of c.£51 billion for 2017 5

Maintain both the Sainsbury's and Asda brands and enable them to sharpen their distinctive customer propositions and attract new customers

Combine a complementary network of more than 2,800 Sainsbury's, Asda and Argos stores and several of the UK’s most visited retail websites, to create greater choice for customers through more store formats and channels, with a combined 47 million customer transactions per week

Enable investment in areas that will benefit customers the most: price, quality, range and creating more flexible ways to shop in stores and through digital channels, across Sainsbury's, Asda and Argos. We expect to lower prices by c.10 per cent on many of the products customers buy regularly

Generate net EBITDA synergies, post investments in price, across the enlarged group of at least £500 million. These synergies are comprised largely of buying benefits, opening Argos in Asda stores and operational efficiencies. There are no planned Sainsbury's or Asda store closures as a result of the Combination

Deliver benefits to the Combined Business through a close relationship with Walmart, both as a strategic partner and long-term shareholder, allowing the business to share knowledge and technology developments between Walmart, Sainsbury's and Asda

Offer more opportunities for over 330,000 colleagues at all levels within the enlarged group, drawing on the shared values and heritage of both businesses

Create significant opportunities for suppliers to develop differentiated product ranges, become more streamlined and to grow their businesses as the Combined Business grows

Deliver substantial value creation for shareholders of Sainsbury's, through double digit EPS accretion and low double digit ROIC by the second full financial year post-completion

Reduce Sainsbury’s lease-adjusted leverage, benefiting from Asda’s high freehold property ownership 6 and pension-free balance sheet, protecting the interests of hundreds of thousands of Sainsbury's and Asda pension holders

and pension-free balance sheet, protecting the interests of hundreds of thousands of Sainsbury's and Asda pension holders Be highly cash generative, enabling a faster de-leveraging profile. The Combined Business is expected to have an investment grade credit profile on completion

Walmart will be a long-term shareholder and partner and will leverage its global scale and investment to support the Combined Business. Upon completion, two Walmart representatives will join the Board of the Combined Business as non-executive directors.

The Combined Business will be chaired by the Sainsbury's Chairman and led by the Sainsbury's CEO and CFO. Asda will continue to be run from Leeds with its own CEO, who will join the Group Operating Board of the Combined Business.

The Combined Business will be run by the best leaders from both businesses, supported by highly capable Sainsbury's and Asda colleagues.

Asda current trading

During the first quarter ended 31 March 2018, Asda delivered its fourth consecutive quarter of positive like-for-like sales growth as its offer continued to resonate with customers. Asda’s disciplined focus on Every Day Low Cost enabled it to return to profit growth in the first quarter7.

In the financial year to 31 December 2017, Asda saw a 2.6 per cent growth in estimated sales to approximately £22.2bn and a return to positive like-for-like growth for the full year. This was driven by a return to volume growth in own label grocery and fresh food, supported by price and quality investments.

Asda also experienced strong growth in online, both groceries and clothing, driven by improvements in customer proposition and customer experience.

Investments in price and overall customer proposition led to a planned reduction in operating margin for the year to 31 December 2017. This resulted in Asda Operating Profit of approximately £720m (2016: £845m)8. Free cash flow generation continued to be strong in 2017.

The Asda Group Limited financial information for the financial year to 31 December 2017 mentioned here are unaudited estimates and subject to change. Upon completion of the audit as of and for the year ended 31 December 2017, the Asda Group Limited financial statements will be filed with Companies House and publicly available at www.companieshouse.gov.uk.

Commenting on the Combination, David Tyler, Chairman of Sainsbury's, said:

“We believe that the combination of Sainsbury's and Asda will create substantial value for our shareholders and will be excellent news for our customers and our colleagues. As one of the largest employers in the country, the combined business will become an even greater contributor to the British economy. The proposal will bring together two of the most experienced and talented management teams in retail at a time when the industry is undergoing rapid change. We welcome Walmart as a significant shareholder and look forward to working closely with them.”

Commenting on the Combination, Mike Coupe, Chief Executive Officer of Sainsbury's, said:

“This is a transformational opportunity to create a new force in UK retail, which will be more competitive and give customers more of what they want now and in the future. It will create a business that is more dynamic, more adaptable, more resilient and an even bigger contributor to the UK economy. Having worked at Asda before Sainsbury's, I understand the culture and the businesses well and believe they are the best possible fit. This creates a great deal for customers, colleagues, suppliers and shareholders and I am excited about the opportunities ahead and what we can achieve together.”

Commenting on the Combination, Judith McKenna, President and Chief Executive Officer of Walmart International, said:

“This proposed merger represents a unique and bold opportunity, consistent with our strategy of looking for new ways to drive international growth. Asda became part of Walmart nearly 20 years ago, and it is a great business and an important part of our portfolio, acting as a source of best practices, new ideas and talent for Walmart businesses around the world. We believe this combination will create a dynamic new retail player better positioned for even more success in a fast-changing and competitive UK market. It will unlock value for both customers and shareholders, but, at the same time, it’s the colleagues at Asda who make the difference, and this merger will provide them with broader opportunities within the retail group. We are very much looking forward to working closely with Sainsbury's to deliver the benefits of the combined business.”

Commenting on the Combination, Roger Burnley, Chief Executive Officer of Asda, said:

“The combination of Asda and Sainsbury's into a single retailing group will be great news for Asda customers, allowing us to deliver even lower prices in store and even greater choice. Asda will continue to be Asda, but by coming together with Sainsbury's, supported by Walmart, we can further accelerate our existing strategy and make our offer even more compelling and competitive.

From my six years with Asda and ten years with Sainsbury's, I know first hand that both organisations are fortunate to employ some of the most talented and customer-focused colleagues in this market and I am excited by the opportunity of the two coming together.”

Analyst presentation and conference call details

Sainsbury's will host a presentation for analysts and investors at UBS, 5 Broadgate, London, EC2M 2QS, with a conference call and webcast at 09:30am today.

To view the slides of the presentation and the webcast: We recommend that you register for this event in advance. To do so, visit www.j-sainsbury.co.uk and follow the on-screen instructions. To participate in the live event, please go to the website from 09:00am on the day of the announcement, where there will be further instructions. An archive of the webcast will be available later in the day.

To listen to the presentation: To listen to the live presentation by telephone, please dial 0800 783 0906 (or +44 (0)1296 480 100 if you are unable to use the primary number). The passcode for the event is 471 558. A transcript of the presentation and an archive recording of this event will be available later in the day at www.j-sainsbury.co.uk.

A presentation to the media will take place on 30 April 2018 at UBS, 5 Broadgate, London, EC2M 2QS from 11:30am to 1:00pm.

To listen to the media conference call: To listen to the live media conference call by telephone, please dial +44 (0)1296 311 600. The pass code for the event is 763 962.

1 Based on Sainsbury’s issued share capital as at 26 April 2018 and comprising Sainsbury's ordinary voting shares representing 29.9% of Sainsbury’s enlarged ordinary voting share capital with the balance being ordinary non-voting shares which are convertible into ordinary voting shares

2 Based on the closing price of one Sainsbury’s ordinary share of 269.8 pence on 27 April 2018, being the last practicable date prior to this announcement

3 Subject to completion of the Combination, Walmart will retain the Asda defined benefit pension scheme as part of the Combination, along with any ongoing defined benefit pension related obligations. The last IFRS reported liability for defined benefit obligations for Asda Group Limited as at 31 December 2016 was £893.5 million

4 A Rule 9 waiver will not be sought for the conversion of the ordinary non-voting shares into ordinary voting shares reflecting the fact that the ordinary non-voting shares cannot be converted into ordinary voting shares if such conversion would trigger a requirement for the holder to make a mandatory offer pursuant to Rule 9 of the Code. Accordingly, the transaction is not subject to the City Code on Takeovers and Mergers (the “Code”) and consequently the provisions of the Code applicable to a “whitewash transaction” will not apply

5 Based on the unaudited full year results for the year ended 31 December 2017 for Asda and the unaudited full year results for the 52 weeks to 10 March 2018 for Sainsbury's. The Asda Group Limited financial information for the financial year to 31 December 2017 included here and elsewhere in this announcement are unaudited estimates and subject to change

6 75 per cent of the square footage of Asda’s property estate is freehold

7 Calculated based on US GAAP for Broadstreet Great Wilson Europe Limited (“BGWE”), the top UK holding company for Asda Group Limited. Asda will announce its quarterly trading update on 17 May 2018 as part of Walmart’s first quarter results

8 Asda operating profit includes c.£80m of charges (2016: c.£75m) which, under the structure of the transaction, are not expected to continue post completion