Asda back in British hands after £6.8bn sale
Asda hopes to re-establish itself with return to British ownership and a new focus, writes Laura Onita
Two self-made billionaire brothers have pledged to make Asda a champion of British food and boost its convenience arm after winning a battle to buy the grocery chain from Walmart. Mohsin and Zuber Issa, from Blackburn, and the investment firm TDR Capital will return Asda to British ownership for the first time in more than 20 years as part of a £6.8 billion deal. Rishi Sunak, the Chancellor, welcomed news of the deal, which is still to be cleared by regulators.
TWO self-made billionaire brothers have pledged to make Asda a champion of British food and turbocharge its convenience arm after winning a battle to buy the grocery chain, in a deal welcomed by Rishi Sunak, the Chancellor.
Blackburn-based Mohsin and Zuber Issa have teamed up with investment firm TDR Capital to take control of the supermarket, returning it to British ownership for the first time in more than 20 years as part of a £6.8bn deal.
They will invest £1bn in growth over the next three years.
Mr Sunak cheered ered the news in a rare instance of a Chancellor ancellor publicly backing a business deal eal still to be cleared by competition regulators. ulators.
On Twitter, he said: “Great to see Asda returning to majority UK ownership. The new owners have already committed to investing vesting over £1bn in the next three years rs and increasing the proportion of Uk-based suppliers. I wish them the best est of luck.”
The grocer has as 631 shops, including 18 fuel filling stations, tions, and 147,000 staff. It made sales of £22.9bn in 2018 and an operating profit fit of £ 803.2m. It is thought the new owners will focus on a rapid expansion n in the convenience market, rivalling ng Tesco Metro and Sainsbury’s Local al brands.
Selling more e groceries online remains an area a of focus, as well as working with more British suppliers and farmers to source products such as chicken, dairy goods, wheat and potatoes, along with a commitment to sell 100pc British beef. Asda currently has around 3,500 UK suppliers.
Walmart, which bought the UK’S third-largest grocer in 1999 for £6.7bn, will retain a minority stake in Asda. The takeover is being funded with £4bn of debt. Mohsin and Zuber, 49 and 48, bought their first petrol station 19 years ago in Bury for £150,000 before l aunching a global expansion that has made EG Group one of the world’s largest forecourt and convenience store operators. Their wealth is estimated at almost £3.6bn – some of which has been spent on building five mansions in their hometown, buying a property in Knightsbridge and supporting charities.
Asda finance chief Rob Mcwilliam said the transaction – whose code name was “Project Daisy” – is aimed at seizing back market share from rivals. The deal follows weeks of negotiations with rival bidders including larger US investment firms Apollo Global Management and Lone Star. Asda’s top team will stay in place, led by chief executive Roger Burnley, and its headquarters will remain in Leeds. The Issas, whose interest was first reported by The Sunday Telegraph in February, had been widely discounted as a possible buyer as Apollo vied with Lone Star, which dropped out of the running last week.
Completing the deal will come as a relief to Walmart after Asda was forced to abort a £10bn merger with Sainsbury’s when it was blocked last year by competition regulators.
The Issas’ firm EG Group has hundreds of forecourts in towns and cities where there are large Asda branches, most of which also have petrol stations. This overlap is likely to be examined by the Competition and Markets Authority to ensure the tie-up will not affect competition between petrol suppliers. It could order some sites to be sold.
A Treasury source said that Mr Sunak’s tweet did not signal a change of approach to deals and added: “The Chancellor remains committed to open markets.”
Mr Mcwilliam said: “We will work constructively with the CMA and we are confident of getting the necessary regulatory clearance.”
Following a drawn-out bidding process interrupted by Covid-19, Walmart has finally managed to offload Asda – 20 years after it bought the grocer and for and for roughly the same price it originally paid. The new majority owners are the low-profile, Blackburn-based brothers Mohsin and Zuber Issa, who also run petrol station chain EG Group, together with investment firm TDR Capital. Private equity houses Apollo and Lone Star both lost out.
The return of Asda to
British ownership has been widely cheered, with the Issas pledging to bring the Leeds-headquartered grocer back to its Northern roots.
Jake Berry, Tory MP for Rossendale and Darwen, said: “It is great news for the region and the UK. As a local MP and former Northern Powerhouse minister, I watched Mohsin and Zuber build this impressive business from East Lancashire, and I think they will be great owners of Asda.”
Even the Chancellor weighed in with support, an unusual intervention as ministers have usually held back from picking sides in major deals. But, in the words of one City pundit, there are more questions than answers.
The fine print of the transaction is cloaked in secrecy. Analysts have estimated that Walmart is likely to have held on to a 10-20pc stake in Asda, and will be represented by a single seat on its board. The Issa brothers and TDR are thought to be getting 40pc of the company each.
A City source confirmed that Walmart’s stake is much lower than the 42pc minority interest it was seeking in a disastrous merger attempt with Sainsbury’s, which was blocked by the competition regulator last year due to fears it would drive up prices for customers.
Asda’s acquisition by Walmart was meant to give the American behemoth a bridgehead into Europe, but this ambition never turned into reality.
The US conglomerate has muscled in on other more lucrative markets, in particular in India, and has made no secret that it would like to be rid of Asda. The deal will be financed using £4bn of debt, which consists of a combination of high-yield bonds and leveraged loans, led by Barclays.
After a lengthy bidding process, the victors’ thoughts are now likely to turn to the future. The chain has long been challenged by the rise of German discounters Aldi and Lidl, which together now control 14pc of the grocery market versus Asda’s 14.5pc.
The company’s operating profits have been going backwards in the past decade as it struggles to eke a return out of rock-bottom prices. The new deal does not mean it will be flush with cash, either. The entrepreneurs said they plan to inject £1bn of new money over the next three years, but this is still less than many rivals. Aldi, for example, is investing £500m a year.
The siblings are understood to be less interested in a sale-and-leaseback deal of Asda’s freehold stores – about 75pc of its 631 branches – than Apollo would have been, a controversial move that would release a large chunk of cash, but is likely to be viewed as risky financial engineering.
“If you put a rent bill into that business model it wouldn’t take much for it to be loss-making,” says Clive Black, a retail analyst for broker Shore Capital. “More to the point, if you sell the family silver, having a loss-making business that is no longer asset-backed would put Asda in worrying territory in the medium term.”
The pair could consider selling its manufacturing business, which includes meat farms, if they wanted to rustle up more funds instead.
The siblings have rightly identified convenience stores as a source of growth. Asda does not have a significant presence in that market,
‘The entrepreneurs plan to inject £1bn over the next three years, but this is still less than many of its rivals’
but is testing an “On the Move” format at three of EG Group’s fuel station forecourts, which could provide a blueprint on which to build.
The concern, however, is that although the brothers have expertise in that arena through tie-ups with Spar and Carrefour in petrol stations, they have no knowledge of mass market grocery or clothing retailing.
Another area of focus will be partnerships with other brands – of which EG Group has plenty – whereby various fascias are installed in Asda supermarkets to attract shoppers to their stores and use some of the space they have available in its megastores.
Some industry observers have said that pegging Asda’s growth on convenience and brand partnerships does not warrant a £6.8bn deal.
The brothers said they plan to keep Asda and EG Garages separate, which should alleviate competition concerns – as well as providing relief to current grocery partner Spar. In a video, Zuber said that Asda will continue to be run by chief executive Roger Burnley.