Investor Alert

London Markets

April 30, 2018, 12:25 p.m. EDT

FTSE 100 ends with gain, led higher by leap for Sainsbury’s

Sainsbury shares soar following news that grocer plans to merge with Walmart’s Asda

By Victor Reklaitis, MarketWatch

AFP/Getty Images
An employee moves shopping trolleys in front of a Sainsbury's store in London.

U.K. stocks closed in positive territory Monday, with J Sainsbury PLC shares providing a big boost after the grocery chain said it has agreed to merge with Walmart Inc.’s British unit, Asda Group Ltd.

What are markets doing?

The FTSE 100 index (FTSE:UK:UKX) tacked on 0.1% to end at 7,509.30, notching its highest close since Jan. 31 and building on Friday’s rise.

The pound (XTUP:GBPUSD) changed hands at $1.3752, down from $1.3784 late Friday in New York.

What is driving the markets?

The FTSE 100 has scored five weekly gains in a row, helped in recent sessions by the pound’s drop, which has been fueled by disappointing readings on the U.K. economy. The releases have dampened the case for an interest-rate increase from the Bank of England when its policy makers next meet in May.

A weaker pound tends to boost the British blue-chip index, as its many multinational companies generate most of their sales in foreign currencies.

The FTSE 100 was getting an additional lift on Monday from a leap for Sainsbury shares on the deal news, helping the London benchmark cut its year-to-date drop to 2.3%. In April, the FTSE jumped 6.4%.

Traders also tracked the latest upheaval within the U.K. government, which now has lost four cabinet ministers in six months. Prime Minister Theresa May on Monday appointed Sajid Javid to the post of home secretary, replacing Amber Rudd, who resigned over misleading Parliament over the existence of targets for expelling illegal immigrants.

Which stocks are in focus?

Sainsbury’s stock (LON:UK:SBRY) surged 15% for the FTSE 100’s biggest gain. The merger with Walmart’s U.K. arm looks set to create a British retail giant with combined revenue of about 51 billion pounds ($69 billion).

The U.K. supermarket said that Walmart will hold 42% of the combined business and will receive £3 billion as part of the deal, valuing Asda at around £7 billion. The deal, if completed, would create the Britain’s largest supermarket chain, with 2,800 stores and 27% of market share, so will likely draw antitrust scrutiny from regulators.

Shares of rival grocer Tesco PLC (LON:UK:TSCO) fell 0.9%. Walmart shares (NYS:WMT) were up 2% about midway through the U.S. session.

WPP PLC shares (LON:UK:WPP) soared 8.6% for the FTSE 100’s second-biggest rise after the advertising giant posted first-quarter profit that beat forecasts, in the first earnings report after the departure of Martin Sorrell as chief executive.

Glencore PLC (LON:UK:GLEN)   (OTC:GLCNF) fell 5% after two of the miner’s businesses in the Democratic Republic of the Congo on Friday were served freezing orders for around $3 billion.

What are strategists saying?

“This £15 billion deal, if agreed and approved by the competition and markets agency, potentially with just some disposals at a local level, could change the landscape of the sector dramatically, creating a more powerful rival to market leader Tesco,” said Jasper Lawler, head of research at London Capital Group, in a note, referring to the planned Sainsbury-Asda tie-up.

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