Leeds-based supermarket giant Asda announced it would buy Blackburn-based petrol station operator EG Group’s UK and Ireland business for an enterprise value of £2.27 billion — creating a company with combined revenue of nearly £30 billion.
Asda and EG are both owned by brothers Zuber and Mohsin Issa and private equity group TDR Capital.
Walmart retains an equity investment in Asda, with an ongoing commercial relationship and a seat on the board.
EG’s UK and Ireland business consists of 350 petrol filling station (PFS) sites and over 1,000 food-to-go locations – through an affiliate of its parent company, Bellis Acquisition Company 3 Limited, a wholly-owned subsidiary of the Asda Group.
EG Group will retain 30 PFS sites in the UK “for wider group development” which will not form part of the transaction.
Gary Lindsay, managing partner at TDR Capital LLP, said: “The combination of Asda and EG UK&I creates a convenience and food retailing champion, with nearly £30 billion in annual revenues.
“The two businesses are highly complementary, bringing together Asda’s traditional focus on mid-to-large sized supermarkets and EG UK&I’s on convenience retail, foodservice and fuel.
“At TDR Capital we’re proud to play our part in bringing the businesses together.
“We invest for the long term and this transaction is the realisation of a shared vision which began with our investment in EG in 2016.
“We are committed to help Asda reclaim its number two position in UK grocery, strengthening its position as a much-loved British brand that delivers great value to millions of customers every week.”
Asda chair Stuart Rose said: “Asda’s acquisition of EG UK and Ireland will create a consumer champion like the UK has never seen.
“Throughout my career in retail – one thing has always been true, that meeting the evolving needs of customers is the route to growth.
“This transaction is all about driving growth by bringing Asda’s heritage in value to even more communities and accelerating the growth of its convenience retail business.”
Mohsin Issa, co-owner of Asda, said: “Asda is committed to saving customers precious time and money across their shopping baskets and on the forecourt.
“The combination of Asda and EG UK&I will be positive news for motorists, as we will be able to bring Asda’s highly competitive fuel offer to even more customers.
“I would like to sincerely thank all colleagues at both businesses for their ongoing efforts to serve our customers during tough economic times, and I look forward to welcoming our new colleagues from EG UK & I and expanding the Asda family further.”
Following completion of the transaction, Asda plans to invest more than £150 million within the next three years to fully integrate the combined business.
“As part of the transaction the shareholders are providing c. £450m of additional equity to fund the transaction,” said Asda.
“The acquisition will strengthen Asda’s financial profile with the contribution of c. £195m EBITDA after rents, with additional P&L synergies of c. £100m expected to be generated over the next three years.
“These synergies mainly arise through economies of scale of the combined entity, higher volumes and cross-selling opportunities from a large and highly complementary customer base.
“Asda also expects to realise over £100m of working capital benefits as a result of its enlarged scale.
“The combination of Asda and EG UK&I is a natural next step for both businesses.
“The enlarged group will be better placed to benefit from highly attractive structural drivers behind the convenience and foodservice markets, estimated by Euromonitor to be worth c. £40bn and c. £62bn, respectively, in 2022 …”
Asda co-owner Mohsin Issa will continue to lead the business.
“Mohsin will continue to be supported by Asda’s existing strong leadership team, which includes Michael Gleeson as Chief Financial Officer, who took up his post on 24th May,” said Asda.
“The business has also commenced a formal search of global talent to identify a new CEO of Asda with the relevant skills required to lead and grow Asda into the future. It is expected this search process will take several months.
“Alongside existing board members, Asda will hire additional non-executive directors to its board, reflecting its commitment to further strengthening its governance systems, structure and processes.
“The transaction will be funded by a combination of debt and equity, including c. £450m of equity being provided by the shareholders, £770m of term loan debt, as well as c. £1.1bn from property related transactions.
“The transaction does not alter Asda’s existing leverage ratios materially and results in a pro forma net leverage of approximately 4.3 times after finance leases and ground rent liabilities.
“As a result of EG UK&I being almost entirely a freehold estate with c. £1.2bn of property value, the transaction will have no impact on Asda’s freehold value.
“It will continue to retain a strong underpin of freehold assets worth over £9.6bn, following the transaction.
“Lazard has provided an independent report on the financial aspects of the transaction to the Asda board of Directors who have approved the transaction.”
Asda also reported that its like-for like sales increased by 7.8% in the three months to the end of March compared with the previous year, while total revenues excluding fuel increased by 8% to £5 billion.