Rumours of Asda takeover of B&M European have 'little logic'

On the back of rumours suggesting discount retailer B&M European Value was a takeover target for Asda, analysts at Investec poured scorn on there being much logic in such a deal but still like the look of the company.

Asda, which is owned by US giant Wal-Mart, has been exploring potential bid options, the Sunday Times reported, although these are reported to be at an early stage.

"For Asda, we see little logic, as buying B&M would not solve its current difficulties nor offer material synergies given their relative size," Investec's analysts wrote, compared to the non-food aims and material synergies of the Sainsbury/Argos deal.

Adding B&M’s sales to Asda’s estimated non-fuel sales would only take Asda sales back to where it was in 2013 and add 1-2% top-line growth per annum, if Asda can stop sales falling, while limited buying or back-office cost saving synergies are apparent.

"However, from Walmart’s perspective, acquiring B&M could give it an interesting format with which to build a European business, having failed previously with its big box."

But what the story did do is reaffirm the bank's analysts' view of the value within B&M, with a model that is "highly attractive in our view, regardless of M&A speculation, due to the group’s growth prospects in a market seeing structural growth, with a 6-8 year UK roll-out & opportunity to build scale in Europe".