Indian-origin billionaire owners of petrol station operator and private equity group TDR Capital have taken control of Asda from Walmart, ending the US retailer’s 20-year foray into Europe that fell short of expectations. The transaction values the UK grocer at £6.8bn, only slightly more than the £6.7bn Walmart paid for the supermarket in 1999. Brothers Mohsin and Zuber Issa and TDR, who already jointly own British petrol station operator EG Group, will hold equal stakes in the UK’s third-largest supermarket, with Walmart retaining a minority shareholding.
The exact details of the size of the buyers’ stakes and how much they paid for them were not disclosed. Asda’s existing management team, led by chief executive Roger Burnley, will remain in place. The Issa brothers, who started EG from a single forecourt in Greater Manchester and built it into a business with €20bn of annual revenues, said they were “very proud to be investing in Asda”, describing it as “an iconic British business that we have admired for many years”.
They pledged to invest more than £1bn in the company over the next three years and increase the share of UK-produced food that it sells. The deal will be financed using a £4bn debt package, which will comprise a combination of high-yield bonds and leveraged loans, led by Barclays. Judith McKenna, chief executive of Walmart International, said: “We wanted to keep a stake
in this because we believe in the story to the upside, but equally we recognise that this probably is the right structure for Asda to be successful for the long term.” She noted that Walmart, which will retain a seat on Asda’s board, already had a range of ownership structures in different overseas markets. “One size doesn’t fit all,” she said.
The Issa brothers and TDR said that Asda’s headquarters would remain in Leeds and that its basic strategy of “everyday low prices” would continue. Blackburn-based EG has convenience stores, including Spar and Carrefour on its forecourts but the brothers have no experience of running large-format supermarkets. The Issa brothers said: “We believe that our experience with EG Group, including our expertise around convenience and brand partnerships and our successful partnership with TDR Capital, can help to accelerate and execute [Asda’s] growth strategy.” Observers predicted they would form more partnerships with other retailers to make better use of space in Asda’s stores, pointing to a recent trial in which DIY group B&Q will open four shops in Asda supermarkets.
Zuber Issa 48, and Mohsin Issa 49, sons of an immigrant from Gujarat, began small, working on a petrol station in Greater Manchester in 2001, and went on to build a chain of petrol stations in Europe and the United States as part of their company, EG Group. People who know them say that part of their success is in remaining curious about competitors and being willing to learn and pick up new ideas.
The entry of Walmart promised to shake up the UK grocery sector in 1999 and was welcomed by the government at the time, which hoped it would provide an antidote to high prices and
unexceptional service. However, strict UK laws made it hard for Walmart to expand Asda in the way it had grown in the US, while an attempt to buy Safeway in 2003 was quashed by competition regulators. Over the past decade, it has faced increasingly potent competition from German-owned supermarket discounters Aldi and Lidl, which target similar customers with a keen focus on price and have opened hundreds of new stores in Asda’s northern heartlands.
Asda’s share of the UK grocery market is now about 14.5 per cent, down from a peak of almost 18 per cent in 2013. Even so, former Asda chief executive Andy Bond said the company’s ownership by Walmart “did change the face of UK retail, more indirectly than directly”, because it forced incumbents to cut prices and innovate. Walmart had been seeking an exit from the UK for some time to focus on its home market and faster-growing overseas ventures.
Asda, with about £23bn in annual sales, looked increasingly peripheral compared with its ventures in China and India. Walmart reported total revenues of $500bn in 2018. An attempt to sell Asda to rival J Sainsbury was blocked by the UK’s Competition and Markets Authority last year. The CMA may scrutinise this deal too, since Asda owns more than 300 petrol station forecourts and EG has
almost 400.
