Private equity firm TDR Capital is in a hurry to finalize the merger of EG Group and Asda, which is expected to be worth around £13.5 billion. The main motivation behind the deal is the refinancing of the $8.6 billion total debt they have falling due in 2025. The deal would most likely be structured as an Asda takeover of EG UK, adding more debt to the supermarket’s balance sheet. The owners hope to complete the deal by the end of next month.
The merged entity would create a large and profitable group with 581 supermarkets, 700 petrol forecourts, and over 100 convenience stores. EG Group made $1.46 billion in underlying profits on $33 billion in sales last year, while Asda made £1.32 billion on £23.5 billion in sales.
The private equity fund aims to reduce the debt burden of their forecourt empire and refinance at a better rate in the current environment of rising interest rates. TDR Capital acquired Asda in 2021 for £6.8bn, putting down only 13% in equity and becoming one of the most leveraged acquisitions in recent UK history. Asda's net debt is already £4.7 billion, and the new merger would add more debt to its balance sheet.
The deal is being advised by bankers from Rothschild, Barclays, and JP Morgan, with Lord Rose, the former chief executive of Marks & Spencer, likely to lead the combined group.
This proposed merger raises the spectre of a private equity black hole on the UK high street. But it rises concerns from regulators as more and more essential household goods, from food to fuel, are controlled by unaccountable private equity backers. It simply suits the debt refinancing arrangements of a private equity firm and their business partners
Written by: Ignacio Paz
Sources: Retail Week, Financial Times, BusinessLive, Retail Gazette
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