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DEALMAKERS
IN ASSOCIATION WITH:
By Ged Henderson
A MARRIAGE OF CONVENIENCE
When Mohsin and Zuber Issa completed their highly-leveraged £6.8bn acquisition of Asda in February 2021, Lancashire Business View predicted it would be increasingly difficult for the brothers to maintain their low profile.
How true that has proved, with the latest development in this long-running story placing the publicity-shy billionaires firmly in the media spotlight, as well as attracting the ire of union leaders.
In May this year supermarket chain Asda announced the acquisition of forecourt giant EG Group’s UK and Ireland operations for an enterprise value of around £2.27bn.
The Blackburn based brothers and their private equity partners TDR Capital own both concerns.
The deal sees Asda buying a business of around 350 filling stations and more than 1,000 ‘food-to-go’ locations.
The announcement followed months of speculation and unconfirmed reports that a deal was in the offing as part of efforts to reduce Blackburn headquartered EG’s debt burden.
As the speculation mounted and the column inches grew, the shop workers’ union GMB got involved. Its national officer Nadine Houghton, writing to the business secretary Kemi Badenoch, warned any “debt-laden” merger would be “deeply irresponsible.”
When the announcement finally came, Asda described the acquisition as a “natural next step” for both businesses, creating a group with combined revenues of nearly £30bn, serving some 21million customers every week.
It said the transaction would also accelerate Asda’s strategic plans to create a “value-led convenience offer” by rolling out the Asda Express concept across EG’s UK and Ireland
EG UK&I creates a convenience and food retailing champion, with nearly £30bn in annual revenues.
“The two businesses are highly complementary, bringing together Asda’s traditional focus on mid-to-large sized supermarkets and EG UK&I’s on convenience retail, foodservice and fuel.”
Retail veteran Stuart Rose chairs both Asda and EG. He was equally bullish, saying: “Throughout my career in retail – one thing has always been true, that meeting the evolving needs of customers is the route to growth.
estate. Asda also took the opportunity to announce that a global search was on for a new group chief executive, with Mohsin Issa set to step down from the role.
The retailer says the acquisition will be a net creator of jobs and it has plans to invest more than £150m within the next three years to fully integrate the combined business.
It also revealed that the transaction will be funded by a combination of debt and equity. That includes £450m of additional equity provided by the shareholders, £770m of term loan debt and around £1.1bn from property related transactions.
It added: “The transaction does not alter Asda’s existing leverage ratios materially.”
Asda is looking for synergies of around £100m over the next three years, saying: “These mainly arise through economies of scale of the combined entity, higher volumes and cross- selling opportunities from a large and highly complementary customer base.
“Asda also expects to realise over £100m of working capital benefits as a result of its enlarged scale.”
Gary Lindsay, managing partner at TDR Capital, said: “The combination of Asda and
“This transaction is all about driving growth by bringing Asda’s heritage in value to even more communities and accelerating the growth of its convenience retail business.”
Meanwhile, in its take on the deal, EG Group said the proceeds would be added to the net proceeds of $1.4bn from a recent sale and lease back transaction in the US and used to repay debt.
It added: “In due course, the group will look to address upcoming maturities and put in place a capital structure for the medium term.”
EG Group will continue to operate in the USA, Australia, Germany, France, Italy, Netherlands, Luxembourg and Belgium.
It is also retaining around 30 UK sites,
including the first Euro Garages site opened by the brothers in Bury in 2001 at the very start of their incredible business journey.
EG says it will remain a “leading global convenience retailer”, generating over $25bn of annual revenue and more than $1bn of EBITDA, across 5,500 locations, underpinned by around $6bn of freehold property.
The Waterside offices in Blackburn will remain its global headquarters and shared service centre for the group.
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