A deal that would have seen EG Group buy Asda’s 323 petrol forecourts for £750m has been abandoned, forcing the supermarket to take on more debt.
After agreeing to buy Asda, Mohsin and Zuber Issa, the founders of EG, and their private equity backers TDR Capital, announced plans in February to finance the acquisition in part by selling the supermarket’s petrol stations to their own forecourts business for £750m.
However, restrictions imposed by competition regulators on the Issa brothers and TDR were not lifted until June. Only then could the Asda and EG Group’s teams start to share commercial information relating to the purchase of the petrol forecourts.
This led to several changes to the financial evaluation of the proposed deal. “As a result, EG and Asda have decided they will no longer proceed with the transaction, and it was terminated as of 18 October,” both companies said in separate statements.
Asda stressed that it would continue to derive synergy benefits from its strategic alliance with EG, including setting up various foodservice offerings in its supermarkets and rolling out convenience stores on EG forecourts. The retailer recently announced plans to open 28 ‘Asda On the Move’ forecourt outlets this year, with a target of 200 by the end of 2022.
Asda will retain the petrol forecourts business and the associated revenue and profits. However, the £750m expected from the deal will now come from £500m of debt and £250m of its own cash. The Issa brothers and TDR had already loaded Asda with billions of pounds worth of debt to fund their £6.8bn takeover.
The sale of Asda’s distribution assets for well over £1bn, another component of the transaction financing, is not affected by the collapse of the forecourts deal.
NAM Implications:
- £500m extra debt means sweating Asda more…
- Apart from pressures on costs of goods and shelf price increases.
- Fingers crossed re the £1bn sale of Asda distribution assets.
