Following recent reports that the owners of Asda and EG Group are planning to merge the supermarket chain with the forecourt business, one of the UK’s largest unions has warned that such a debt-laden deal would threaten food supplies, fuel prices and jobs.
In a letter to Kemi Badenoch, Secretary of State for Business and Trade, the GMB union points out that Asda’s debts are already thought to be more than £4.7bn and any potential merger with EG Group could add more than £7bn to the total.
EG’s debt is due to be refinanced in 2025 when interest rates are likely to be significantly higher, which the union claims could place the big four supermarket in a “perilous financial position”.
The GMB is calling on the Business Secretary to ensure that if a merger goes ahead, it is fully investigated by the Competition and Markets Authority (CMA).
Nadine Houghton, GMB National Officer, said: “The potential Asda and EG Group merger is likely to saddle the company with a massive, unsustainable debt burden.
“Allowing it to go ahead would be deeply irresponsible. Firstly, it risks the jobs of more than 100,000 employees. As one of the largest private sector employers in the UK, the future sustainability of the business is a matter of national, public interest.
“Secondly, it would place the future of the UK’s food supply at risk by loading even greater, debt on to one of the UK’s big four supermarkets.
“Finally, it will have a chilling effect on competition for fuel prices by creating a ‘super retailer’ of more than 700 petrol stations.”
She concluded: “This merger is not in the best interests of Asda as a business and certainly not in the best interests of the public and consumers. GMB calls on the Secretary of State to ensure the CMA investigates thoroughly – and that additional investigatory and enforcement powers are given with the Competition and Markets Bill now coming to the floor of the House.”
Reports last month said the Issa brothers and private equity firm TDR Capital are hoping that combining the two profitable, cash-generative businesses will allow them to refinance the debt on better terms.
NAM Implications:
- In case anyone forgets…
- …’such a debt-laden deal would threaten food supplies, fuel prices and jobs.’
- Key is keeping debt down to ‘managable’ levels.
- Suppliers might benefit from calculating their exposure level based on current business.
- i.e. amount outstanding divided by your net margin, multiplied by 100
- = incremental sales required to recover loss.
