The competition watchdog has warned that the £6.8bn acquisition of Asda by the Issa brothers and TDR Capital could lead to higher petrol prices in some areas of the country.
The supermarket group’s new owners also control the EG Group, which operates 395 petrol stations in the UK, while Asda has 323 forecourts. With many of the petrol stations located in the same parts of the UK, the Competition and Markets Authority’s (CMA) phase 1 investigation has focused on these overlaps.
Announcing its findings today, the CMA said the deal raises local competition concerns in relation to the supply of road fuel in 36 areas across the UK and the supply of a specific type of fuel – called auto-LPG – in a further area.
Joel Bamford, Senior Director of Mergers, said: “Our job is to protect consumers by making sure there continues to be strong competition between petrol stations, which leads to lower prices at the pump. These are two key players in the market, and it’s important that we thoroughly analyse the deal to make sure that people don’t end up paying over the odds.
“Right now, we’re concerned the merger could lead to higher prices for motorists in certain parts of the UK. However, if the companies can provide a clear-cut solution to address our concerns, we won’t carry out an in-depth Phase 2 investigation.”
The Issa brothers and TDR Capital had already announced plans to sell Asda’s forecourt business to EG for £750m.
They now have five working days to offer binding proposals to the regulator to address the competition concerns identified, which could include the potential sale of some petrol stations to another provider. The CMA then has a further five working days to consider whether to accept any offer instead of referring the case to a full phase 2 investigation.
Responding to the ruling, a spokesperson for the Issa brothers and TDR Capital said: “We will be working constructively with the CMA over the course of the next 10 days in order to arrive at a satisfactory outcome for all parties within phase 1. This would provide welcome certainty for our colleagues, suppliers and customers, and allow us to move forward with our exciting plans for investment and growth at Asda.”
The supermarket group has been operating independently from its buyers whilst the CMA conducts its investigation. However, recent announcements show Asda is already pushing through major changes to reinvigorate its sales performance.
These include slashing its product range and adopting more of a discount model to compete with Aldi and Lidl. It also recently announced plans to overhaul its in-store bakeries and restructure its workforce to align its business to the current shift towards online grocery shopping.
NAM Implications:
- Petrol is one of the UK’s most price-sensitive categories.
- With motorists willing to drive that extra mile for less.
- i.e. not really a competitive issue.
- Best for suppliers to focus on other aspects of the deal…
- …in terms of trade-investment vs return, for instance.
