UK’s billionaire Issa brothers may merge Asda, EG Group

Bloomberg

Britain’s billionaire Issa brothers are considering merging UK grocer Asda Group with EG Group, their international chain of gas stations and convenience stores, people with knowledge of the matter said.
The Issas are studying a range of strategic alternatives for EG Group, which they own together with buyout firm TDR Capital, the people said, asking not to be identified because the information is private. A merger with Asda could value the combined business at around $35 billion including debt, one of the people said.
TDR and the Issas agreed last year to acquire control of Asda, in a deal valuing Britain’s third-largest grocer at 6.8 billion pounds ($9.1 billion). The acquisition was completed in February. They own the business separately from EG Group, and Asda’s former parent Walmart Inc still holds a minority stake in the supermarket chain.
A deal would give EG Group greater bargaining power with suppliers and further scale to compete with companies like Alimentation Couche-Tard Inc, the $40 billion owner of the Circle K convenience store chain. EG Group’s strategy of expanding globally through acquisitions has seen it go head-to-head with the Canadian firm in the bidding for some assets.
Asda and EG Group have been stepping up their cooperation in recent months, drawing up plans to expand foodservice at Asda locations and roll out “Asda On the Move” convenience stores across EG Group filling stations. Combining the two companies would create a sprawling retail operation with a range of store formats from small outlets offering takeaway to large supermarkets.
There are a number of hurdles to a potential merger with Asda, and EG Group’s owners could decide to pursue other options for the business, the people said. They have also been weighing other options including a sale of their Australian assets or a public listing of the global gas station operations, the people said.
EG Group is led by Mohsin and Zuber Issa, who started with a single filling station in Blackburn, an old cotton mill town in northern England.
It’s grown rapidly through a series of debt-funded acquisitions in the past few years to become one of the world’s largest independent gas-station and convenience-store chains.
The company now has around 6,000 sites spread across countries including the U.K., U.S., France, Italy, Germany, the Netherlands and Australia, according to TDR’s website. EG Group has about 7 billion pounds equivalent of total borrowings, while Asda has 4.35 billion pounds of bonds and loans outstanding, data compiled by Bloomberg show.
In 2018, EG Group purchased Kroger Co.’s U.S. convenience store business for $2.15 billion. The next year, it bought Cumberland Farms, gaining 600 locations in a deal that made it the fifth-largest independent convenience-store operator in the U.S.
EG Group has placed more focus on the higher-margin convenience store side of its operations, along with takeaway food, as the volume of fuel sales declines globally. It has partnerships with brands including Burger King, KFC, Starbucks and Subway to run franchises at its gas stations.
Other companies have also been pursuing deals in the space. Seven & i Holdings Co., the Japanese company that controls 7-Eleven, completed its $21 billion purchase of Marathon Petroleum Corp.’s Speedway gas stations in May.
Deliberations are ongoing, and there’s no certainty they will lead to a transaction, the people said. A spokesperson for TDR declined to comment, while representatives for EG Group and Walmart didn’t immediately respond to requests for comment.
EG Group’s 700 million euros ($791 million) of notes due October 2025 fell 0.7 cents on the euro Friday to 101.6 cents, according to Bloomberg data. Asda’s 500 million pounds of bonds maturing in February 2027 fell 1.1 pence on the pound to 91.6 pence.
EG Group has separately been exploring a potential divestment of its Australian unit after receiving interest from potential buyers, the people said. A sale of the business could fetch more than $2 billion, one of the people said.
The company spent A$1.73 billion ($1.2 billion) to acquire 540 Australian fuel convenience sites from Woolworths Group Ltd in 2019.