Together, Sainsbury's and Asda have 2,800 stores.
Bernstein senior analyst Bruno Monteyne said if regulators included discounters - which sell a much smaller range of products - in their assessment of major competitors for the new group, it might have to sell only about 8 per cent of stores.
Tesco, which would be overtaken as United Kingdom leader by the new merged group, fell 0.9 per cent on the news.
Tesco, whose position as United Kingdom leader in terms of market share would be overtaken by the new merged group, tumbled 1.3 percent on the news. Sainsbury's market capitalisation stood at £5.9 billion at the close of business on Friday.
Sainsbury's chief executive Mike Coupe will retain that position in the merged company, which will keep the Sainsbury's and Asda brands.
However the CEO was forced to apologise after he was caught on camera singing "we're in the money" between interviews following the merger announcement, blaming the episode on "an unguarded moment".
"It was an unfortunate choice of song from the musical '42nd Street, ' which I saw a year ago, and I apologize if I have offended anyone", Coupe said in the statement.
"This has led to increased competition across grocery, general merchandise and clothing, as customers seek ever greater value, choice and convenience".
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The two companies had combined revenues of more than 70 billion US dollars for 2017.
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".
"We look forward to working closely with Sainsbury's to deliver the benefits of the combination".
Instead, he said cost savings of at least £500m would allow the new group, which will account for almost £1 in every three £3 spent on groceries, to reduce prices by a tenth on many "everyday items".
The combination of Sainsbury's and Asda would control nearly a third of the United Kingdom grocery market, putting it ahead of Tesco.
"The transaction will, however, attract regulatory scrutiny, given that the merged companies will become the largest grocery retailer in the United Kingdom".
In March, Tesco completed the purchase of wholesaler Booker - Britain's biggest cash-and-carry operator - for £3.7 billion.
Sainsbury's opened its first shop in London in 1869, with the family business climbing to become one of the biggest store names in Britain.
LONDON, April 30 (Reuters) - A multi-billion pound merger between British supermarket Sainsbury's and Asda shook up retail stocks on Monday while European benchmarks rose, on track to end the month of April with a gain.