Asda takeover would be ‘remarkable case’ of ambition - Ros Snowdon

After a long and drawn out process, it appears that Asda is to be taken over by private equity firm TDR Capital in conjunction with the Lancashire-based Issa brothers.
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Analysts at Shore Capital said that if this happens, it will be a remarkable case of “immense ambition, courage and entrepreneurship” on behalf of the siblings behind the now global Euro-Garages business.

Veteran Shore Capital retail analyst, Clive Black, said the Issa brothers will bring retail experience and business acumen to Asda.

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However, it won’t be all plain sailing. TDR Capital and the Issa brothers are being called upon to ensure that staff are not made redundant as a result of any deal. Leeds-based Asda employs nearly 150,000 people.

Lucy Powell, the shadow business minister, told The Times: “The Government must not turn a blind eye to takeovers of national significance, and ensure that a takeover of Asda does not threaten the livelihoods that depend on the company, nor the provision of food during a pandemic, which is still ongoing.”

Asda’s parent company, American retail giant Walmart, is reported to have chosen the Issa brothers and TDR Capital as the preferred bidder for Britain’s third biggest supermarket.

After Walmart’s attempt to sell Asda to the UK’s second biggest supermarket, Sainsbury’s, for £7.3bn was thwarted by Britain’s competition regulator last year, Walmart said in July it had resumed talks with potential buyers of a majority stake.

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A consortium led by Mohsin and Zuber Issa, the billionaire brothers who founded Euro-Garages Group nearly two decades ago, and TDR Capital to buy Asda would bring it back under British ownership for the first time since 1999, when Walmart paid £6.7bn for the business.

It is understood that the deal has not been finalised yet.

The Issa brothers and TDR Capital have been competing with US private equity firm Apollo Global Management for Asda.

While Asda’s sales have increased during the Covid-19 pandemic, the chain has lagged market leader Tesco, Sainsbury’s and fourth player, Bradford-based Morrisons.

In the latest Kantar data, covering the 12 weeks to September 6, it emerged that Asda underperformed again against its big four rivals.

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Kantar said that Morrisons was the star performer out of the big four, with sales rising 12.9 per cent over the 12 week period. Market leader Tesco saw a 10.5 per cent increase, followed by Sainsbury’s (up 8.0 per cent) and Asda (up 6.3 per cent).

One possible bonus for the deal is that Asda has previous experience working with Euro-Garages. A few weeks ago, it announced a deal to develop “Asda on the Move” branded convenience stores on Euro-Garages’ petrol forecourts.

Sky News, which first reported on the front runners for Asda’s acquisition, said the Issa brothers and TDR Capital want to retain Asda’s CEO Roger Burnley, who has a good pedigree and is an experienced and effective leader.

However, there are concerns that the Issa brothers own a number of petrol stations that are close to Asda supermarkets, which could raise questions about store or forecourt closures. It could also increase the chance of the deal being blocked by the competition watchdog, the UK Competition & Markets Authority (CMA).

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Mr Black at Shore Capital said that whether or not the TDR/Issa vehicle can be considered separate to or a concert party to Euro-Garages will need to be considered.

“All in all, however, even if it is considered a TDR/Euro-Garages transaction, we doubt that after an initial perusal of the UK fuel market that the CMA would recommend a phase II investigation; but stranger things happened (remember Poundland’s acquisition for 99p stores amongst a number of regulatory calamities),” he said.

Walmart has been wanting to offload Asda for some time. It would be good to see it back in British hands after more than two decades, although the Government must ensure that jobs are protected and there isn’t a raft of Asda store closures.