Lower prices pledges Asda after £778m deal to buy Netto's UK arm

Asda yesterday revealed that it had reached agreement with Dansk Supermarked to buy its subsidiary, Netto Foodstores.

The transaction, which is subject to regulatory approval, will lead to Netto's 193 UK stores taking on the Asda brand.

Asda, which is owned by US-based Wal-Mart, described the move as a "significant step forward" in its ambition to grow its supermarkets division. The deal will allow Netto to focus on its operations in Scandinavia and northern Europe.

Asda expects to finalise the deal after gaining approval from the Office of Fair Trading later this summer. The Leeds-based supermarket chain hopes the Netto stores will trade under an Asda fascia by the middle of 2011.

Until approval is granted, all Netto stores in the UK will continue to operate as usual under their existing management.

Netto was established in the UK in 1990 and operates 193 stores with an average size of 8,000 sq ft.

It is the market leader in its home country of Denmark and among the fastest growing discount retailers in Germany, Poland and Sweden.

Netto's UK head office is in South Elmsall, West Yorkshire, and its first British store opened in Leeds.

Andy Clarke, Asda's president and chief executive, said: "We very much look forward to welcoming Netto's colleagues into our business and joining our team.

"Customers will benefit from low prices on a significantly broader range of quality products, complemented by the wide range of services we offer in all our smaller stores.

"The creation of new in-store jobs in a tough economy will also be a welcome boost in scores of communities across the UK." Claus Juel-Jensen, the managing director of Netto, said: "As a major league player, Asda is the ideal purchaser of our UK business."

Judith McKenna, Asda's chief financial officer, said Asda had been talking to Dansk Supermarked for a couple of months about the acquisition, adding: "It's an opportunity for us to expand our supermarket range."

Asda has plans to open smaller stores and launch more Living general merchandise outlets.

Asda has struggled in recent months. Last week it reported its first sales fall in four years. Kantar Worldpanel's latest data showed its slice of the sector falling for the fifth month in a row, to 16.8 per cent

Mr Clarke has taken over at a time when the retailer faces plunging food price inflation and stiff competition from rivals.

He succeeded Andy Bond, who is now chairman of Asda's executive board – a newly created role – after five years at the helm.

Collins Stewart analyst Greg Lawless said the deal would help Asda to fulfil one of its main ambitions – to become a clear UK number two in food.

Asda is currently Britain's second-biggest supermarket group ahead of J Sainsbury, but only thanks to its stronger position in non-food ranges.

"It (the Netto deal) takes Asda into neighbourhoods where its name will be known and that its out-of-town stores currently don't reach," Mr Lawless said.

Analysts said the deal might also fuel speculation that Asda will look to buy a general merchandise retailer.

The group said last month that, as well as growing its smaller format stores, it wanted to overtake Tesco to become Britain's biggest non-food retailer.

This has prompted speculation that Asda might bid for the Home Retail Group, which owns Argos and Homebase.

Last month, there were reports Asda had "weighed up" budget clothing chain New Look.

At the time, Asda declined to comment on market speculation.

Leeds-based law firm Walker Morris advised Dansk on all legal aspects of the deal.

Ian Gilbert, who led the Walker Morris team, said: "We are delighted to have advised Dansk on this successful deal for all parties."

Roots in dairy farming

Leeds-based supermarket chain Asda can trace its roots back to the West Riding Dairy Farmers, who joined together under the banner of Hindell's Dairy Farmers, in the early 20th century.

The company diversified in 1949 to become the Associated Dairies and Farm Stores.

In 1965, entrepreneurs Peter and Fred Asquith, who were originally butchers based in Knottingley, West Yorkshire, joined together with Associated Dairies to form Asda. In 1999 Asda was taken over by US-based Wal-Mart.

It has 170,000 staff serving customers from 374 stores, including 25 Asda Living stores, 23 depots and eight recycling centres across the UK.

Founded in 1960, Dansk Supermarked is the largest and most profitable retail company in Denmark with more than 1,300 stores in five countries.