Supermarket chain Asda has agreed to buy the UK and Irish operations of petrol station chain EG Group in a £2.3bn deal masterminded by the billionaire Issa brothers, who co-own both businesses, in a bid to slash EG’s debt pile of around $9bn.
Zuber Issa said on Tuesday that the deal was “an important strategic step” for EG Group, which like Asda is co-owned by private equity firm TDR Capital and also operates petrol stations in the US, Australia and parts of Europe.
“Following this sale, EG Group will benefit from a significantly strengthened balance sheet,” he said in a statement.
The proceeds from the sale, on top of $1.4bn secured from a recent sale and leaseback deal in the US, will be used to repay some of EG Group’s debt, the company said, with the net leverage expected to fall to below five times. It stood at almost six times last September.
The deal, which includes about 350 petrol stations and more than 1,000 food-to-go locations, values EG Group at £2.27bn including debt. Asda’s shareholders, including its former owner Walmart, will provide about £450mn of additional equity for the deal.
The move is expected to help Asda expand its footprint in the highly competitive convenience sector as it seeks to overtake Sainsbury’s to become the UK’s second-largest supermarket chain.
The combined group will span 600 supermarkets, 700 petrol forecourts and 100 convenience stores, with 170,000 employees and annual revenues of about £30bn.
The deal will lead to more Asda Express shops being rolled out across the EG estate. A total of 166 EG Group sites have already been converted to Asda on the Move formats, which stock Asda own-label products, since the Issas bought the grocer.
“Given common shareholders, the waves from the combination are likely to be modest, but it should make for a more focused entity technically nudging Asda’s market position in the UK,” said Clive Black at Shore Capital. But he added: “With elevated base rates, however, the financial backdrop for Asda/EG worldwide has dramatically changed for the worse.”
Nick Bubb, an independent retail analyst, said: “Asda didn’t need to buy the petrol forecourt business to accelerate the rollout of Asda Express convenience stores, as it is also co-owned by the Issa brothers and TDR, so it may well be that the planned merger is more to do with easing the funding pressure on the heavily indebted businesses.”
Asda’s move to acquire EG Group’s UK and Irish businesses comes about two and a half years after the Issa brothers bought the supermarket chain with TDR Capital in a deal that valued the UK grocer at £6.8bn.
Gary Lindsay, managing partner at TDR Capital, said: “The EG group remains at the leading edge of developing the forecourts of the future, and its ongoing development of alternative fuels and EV charging infrastructure.”
