It has been revealed that Asda owners the Issa brothers and TDR Capital used the proceeds from an earlier disposal to finance the supermarket chain’s recent acquisition of parts of the EG Group – another company that the two parties jointly own.
Last week, Asda announced a deal to acquire petrol station business EG Group’s UK and Irish operations for £2.3 billion. The acquisition involved 350 petrol station and over 1,000 food outlets, with EG owning brands including Leon, as well as branches of KFC and Starbucks.
TDR and the Issa brothers had said that they would contribute £450 million in equity towards the deal. The additional equity was later confirmed to be the proceeds of an earlier real estate transaction conducted as part of their highly leveraged 2021 acquisition of Asda.
In October 2020, TDR and the Issa brothers agreed a deal to acquire Asda from US supermarket giant Walmart for £6.8 billion. £950 million of this was funded through a sale and leaseback of the chain’s warehouse network, which was acquired by Blackstone for £1.7 billion - this is the source of the £450 million that has gone towards the acquisition of EG's UK and Ireland business.
The Issa brothers have insisted that the £450 million in equity was currently “part of the business” and represented a fresh cash injection due to the positioning of the warehouse assets in question outside of the group that the proceeds financed.
However, the deal structure has been described as an example of the “financial engineering” that the Asda owners have used to minimise cash outlay on their transactions. A Financial Times report earlier this year revealed that TDR and the Issa brothers contributed just £200 million in fresh cash to the 2021 acquisition of Asda.
These suggestions were rejected by Lord Stuart Rose, who acts as chairman for both EG and Asda, who described the motivation behind the deal as aiming to transform Asda into a “UK retail champion”, while Asda said that the takeover was about “driving growth, providing value to customers and creating a stronger, more diversified business”.
The firm added: “Asda will have a sustainable capital structure, strong cash generation capabilities and clear strategy to grow EBITDA, which, all combined, will enable Asda to reduce its debt over time.”
Read more about the acquisition of Asda by the Issa brothers and TDR Capital here.
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