Walmart sells majority stake in Asda

Deal with Issa brothers and TDR values UK supermarket group at £6.8bn

 

Walmart has announced the sale of a majority stake in UK supermarket chain Asda to TDR Capital and the owners of EG Group, ending a 20-year foray into Britain that fell short of initial heady expectations.

The transaction values the UK retailer at £6.8 billion (€7.5 billion), slightly more than the £6.7 billion Walmart paid for Asda in 1999.

The owners of British petrol station operator EG - private equity firm TDR Capital and the brothers Mohsin and Zuber Issa - will hold equal stakes in the UK’s third-largest grocer, 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.

Asda currently employs around 4,000 staff in Northern Ireland across 17 stores

Structure

Judith McKenna, president and chief executive of Walmart International and a former Asda employee, said the group believed the transaction “creates the right ownership structure for Asda”.

“I’m delighted that Walmart will retain a significant financial stake, a board seat, and will continue as a strategic partner. Asda has been a powerhouse of innovation for the rest of the Walmart world, and we look forward to continuing to learn from them in the future,” she added.

The Issa brothers, who started EG from a single forecourt in Greater Manchester, said they were “very proud to be investing in Asda”, describing it as “an iconic British business that we have admired for many years”.

The brothers and TDR said Asda’s headquarters would remain in Leeds and that its basic strategy of “everyday low prices” would continue. Many observers expect the new owners to push into convenience retail, given the brothers’ background in forecourt retailing.

Blackburn-based EG, previously called Euro Garages, has convenience stores including Spar and Carrefour on its forecourts but the brothers have no experience of running large-format supermarkets.

The entry of Walmart, the world’s biggest retailer, had promised to shake up the UK grocery sector, which was known at the time of the Asda deal for high prices and unexceptional service. But the US company ultimately failed to dominate in Britain, in part because Asda faced mounting competition over the years from hard discounters Aldi and Lidl.

Exit

Walmart had been seeking an exit from Asda for some time to focus on the US and faster-growing overseas markets. Its UK business has faded in comparison with overseas ventures in China and India. Asda generated £23 billion in sales in its 2018 financial year, making it a small part of the US retailer, which had total revenues of $500bn in 2018.

An attempt to sell a majority stake 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 forecourts and EG has almost 400.

Gary Lindsay, a partner at TDR, said: “We are proud to be investing alongside Mohsin and Zuber, who have built EG Group into a global convenience retailer and will now bring that experience to bear at Asda. We look forward to supporting them, and Roger Burnley and the management team at Asda, to build on the business’s inherent strengths.”

Two other US-based private equity firms, Apollo and Lone Star, had also been considering a deal for Asda but Lone Star withdrew last month. – Copyright The Financial Times Limited 2020