J Sainsbury Plc (JSAIY) and Asda Group Limited confirmed merger plans Monday that will create Britain's biggest supermarket operator and mark a major change in strategy for Walmart Inc. (WMT - Get Report) in the United Kingdom after years of market share declines.

Walmart will own 42% of the combined group, the companies said in a statement, and will receive a cash payment of £2.975 billion that ultimately values Asda, the third of the so-called "Big Four" U.K. supermarkets, as £7.3 billion ($10 billion). A combined Sainsbury's and Asda will have annual revenues of around £51 billion, the companies said, with 2,800 stores and 47 million customer transactions per week.

"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," said Sainsbury's CEO Mike Coupe. "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," he added. "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."

Sainsbury's shares surged more than 20% in the opening minutes of London trading before paring that advance to around 15.7%, with the stock changing hands at a near four-year high of 311.90 pence each. 

However, Sainsbury's has been losing market share gains to both Tesco Plc, (TSCDY) , it's larger rival, and WM Morrison Supermarkets Plc (MRWSY) , the last of the so-called "Big Four" supermarket operators, amid a fiercely-competitive price war that has decimated profit margins.

Tesco shares were marked 3.15% lower in the opening minutes of London trading at 230.6 pence each while Morrisons slipped 1.92% to 235.4 pence each. 

Kantar Worldpanel, a market research group, said earlier this month that Tesco's year-on-year sales growth was tabbed at 2.4%, well ahead of the 1.8% rate for Asda and more than triple the 0.6% pace for Sainsbury's in the 12 weeks ending in March.

Asda has about a 15.6% share of the U.K. grocery market, Kantar estimates, a figure that has been steadily eroding for the past two years, while Sainsbury's has around 15.8%.

Collectively, their 31.4% combination would present a significant challenge to Tesco's 27.6% share, but competition authorities in the United Kingdom may be loth to allow such two-company polarisation in an important commercial sector.

Walmart shares closed at $87.29 each Friday in New York after falling 0.74% on the session, a move that extends its year-to-date decline to 11.6% and values the Bentonville, Ark.-based retailer, the world's biggest, at $255.5 billion.