By Laura McGuire
Asda’s acquisition of petrol giant EG‘s UK and Ireland division has been on the cards for some time and is a largely unsurprising move by the billionaire brothers behind the forecourt business following their purchase of the ‘Big Four’ grocer three years ago.
The £2.27bn deal will see Asda own nearly 1,400 outlets split between a range of supermarkets, petrol stations and convenience stores – creating a company worth £30bn.
Asda, which is owned by the Issa duo and private equity firm TDR Capital, was said to have been motivated to bring the businesses together to mop up their multimillion pound debt pile.
The pair confirmed on Tuesday that the acquisition would be funded by a further £770m worth of fresh loans alongside £450m of equity being pumped in by shareholders.
Some £1.1bn will also be raised through a sale a lease back of Asda properties, with the group previously launching a £8.6bn review of its property estate to help manage costs.
“The merger will help expand Asda’s footprint in the highly competitive yet lucrative convenience store sub-sector in a bid take market share from rivals Sainsbury’s and Tesco,” Myron Jobson. senior personal finance analyst at interactive investor, told City A.M.
Jobson said the tie-up of the two groups is as much a “debt reduction story” as it is an expansionary one.
“A large chunk of the proceeds from the sale will go towards repaying the group’s debt, which stood close to $9.7bn (£7.81bn) at the end of last year – more than seven times its adjusted [EBITDA] for 2022.”
In the wake of soaring living costs and limited consumer spending, Asda and its chair have ruled the acquisition to be a positive for shoppers, vowing to make fuel and food prices affordable.
“Asda’s acquisition of EG UK and Ireland will create a consumer champion like the UK has never seen,” chair Stuart Rose said.
However the deal has sparked concerns amongst workers, with industrial trade union GMB who said they are concerned that rising interest rates will leave the debt of the UK’s third largest retailer “unsustainable”.
The union is also currently involved in a spat with the supermarket after it alleged that Asda threatened to “fire and rehire” staff at 39 stores in southern England in a dispute over pay.
“More than 7,000 Asda colleagues are already facing hire and rehire – this slashing of terms and conditions is just the tip of the iceberg,” Nadine Houghton, GMB national officer, said.
“GMB’s priority is to protect and improve our members’ jobs and conditions, and we believe this merger makes that harder.
The union also called for the merger to be brought under “proper scrutiny” from the competition watchdog, with much of the market also waiting to see if Asda is pulled up on the deal from the Competition and Markets Authority.
The sector has feared that an acquisition of this size could create issues with other competitors and raise fuel prices for consumers.
Asda previously acquired 130 petrol sites from Co-op for £611m but handed 13 sites back after it sparked competition concerns from the CMA.
However, Alex Haffner, competition partner at London law firm Fladgate said it seems “very unlikely” that this deal will need to bear any significant scrutiny by CMA.
“The competition law watchdog already had an opportunity to consider the implications of Asda and EG being controlled by the same shareholders when Asda was originally acquired by the Issa brothers’ acquisition vehicle,” he said.
Haffner added: “That investigation concluded with an agreement by the acquirers to sell off petrol stations in areas where there was a significant overlap between Asda forecourts and those owned by the Issas. As such, nothing will change from a substantive point of view as and when the EG acquisition of Asda is consummated.”
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