Asda is poised to acquire 350 petrol forecourts and 1,000 takeaways in the UK and Ireland from its sister business EG Group, in a deal worth £2.27bn, helping the retailer in its ambition of overtaking Sainsbury’s to become Britain’s second biggest grocer.
The supermarket group’s chair, Stuart Rose, said the acquisition would create a “powerful consumer champion” that was committed to being a “price leader” on fuel and the lowest price of the UK’s big four supermarkets on groceries.
However, the deal is funded by an additional £770m of new loans and £450m in new funds from the billionaire Issa brothers and the private-equity firm TDR Capital, who bought Asda in 2020 and also own EG.
A further £1.1bn will be raised through the sale and lease-back of Asda supermarkets, heaping new financial liabilities on the business which has already struggled to keep pace with some of its bigger rivals in the battle against inflation.
Clive Black, an analyst at Shore Capital, said the level of debt was “very high compared with key market competitors” and that would leave it “hamstrung by leverage” making it harder to be competitive on price at a time when rising interest rates were making debts more costly to service and competition was increasing from the discounters Aldi and Lidl.
Nadine Houghton, the national officer for Asda workers at the GMB union, said she had written to Lord Rose asking: “There is a huge question over who will pay the price for this debt leveraging. Are you able to guarantee that working people are not going to face lower pay from Asda, or higher costs at the pump?”
The long-awaited tie-up of the two groups is expected to create a combined business worth about £10bn and will allow the supermarket to expand further into convenience retail and install more cafes and takeaways.
The combined group is expected to serve about 21 million customers every week and will have revenues of nearly £30bn. Both businesses are chaired by Rose, the former boss of Marks & Spencer.
He said the business will have a “fully sustainable capital structure” and that adding profits from EG’s UK forecourts would help service its extra debts.
“We are ambitious for the business and we want to be as big as we can be,” he said, claiming that Asda had gained market share as a result of improvements under its new owners.
Asda is currently the UK’s third biggest supermarket with a 13.9% share of the grocery market, according to the research firm Kantar, compared with Sainsbury’s, which has 14.8%.
After it buys EG, the combined group will operate about 640 supermarkets, 700 petrol forecourts and 1,000 takeaways, including large franchises for KFC and Subway. All of the EG sites acquired will be rebranded as Asda – 166 EG locations had already been renamed Asda on the Move.
Mohsin Issa, the boss and co-owner of Asda, said the deal would enable the retailer to step up the pace of expansion into convenience retail.
He said the combined group could grab more market share as converting EG’s existing forecourt convenience stores to Asda had led to sales almost doubling at sites where it had already been tried.
Issa suggested there would not be widespread job cuts, saying there was not a big overlap in the “skills sets” between Asda and EG despite a promised £100m of cost savings.
EG employees at the sites being sold will switch to Asda, a strategy that has been criticised by the GMB union, which represents thousands of Asda staff and which called it a deal that was “bad for workers”.
EG will keep about 30 petrol stations in the UK – including the first Euro Garages site in Bury, close to its Blackburn headquarters – which it intends to develop separately. It will also keep its Cooplands bakery business and other food service brands.
The deal is not expected to be heavily scrutinised by the competition watchdog, the Competition and Markets Authority, as it already considers the two businesses to be one because of their shared ownership.
Before the deal, Mohsin and Zuber Issa were co-chief executives of EG Group, the business they founded in 2001 and which has more than 6,000 sites worldwide. Asda said it would begin a search to appoint a new group chief executive.
The supermarket said it would invest more than £150m over the next three years to integrate the combined businesses. Walmart, the US retail giant, retains a minority stake in Asda but did not contribute additional funds to buy EG.
EG said it would use the proceeds to repay its own debts. About £7bn of EG’s debt is reportedly due to be repaid in 2025.
The deal comes after Asda bought 119 convenience store sites with petrol stations attached from the Co-op Group for £600m last August.
EG will continue to operate internationally – in the US, Australia and several European countries.
Rose criticised a plan reportedly being considered by the government to introduce price caps on essential items such as bread and milk.
He said retailers did a “very, very good job for consumers” and a cap could have “unintended consequences”.
