Asda Lines Up EG Group Deal And Fast-Tracks Convenience Growth

Supermarket chain Asda looks set to shake up the U.K.’s convenience grocery market in a $1.5 billion deal that could be signed off as soon as today.

The group – formerly owned by Walmart
WMT
– is finalising a mega-deal to buy sister business EG Group’s U.K. and Irish gas station forecourts, allowing the supermarket to turbocharge its convenience retailing arm.

Asda has been a late-comer to the lucrative convenience sector but is trying to fast-track growth through gas stations, a recently-launched Asda Express format and the acquisition of over 130 locations from rival Coop.

In a story first reported by UK news channel Sky News, the businesses are expected to formally announce a long-awaited tie-up imminently, which would create a combined business worth about $12.4 billion.

Both groups are owned by the Lancashire-based Issa brothers along with private equity firm TDR Capital. The companies are chaired by former Marks & Spencer boss and retail veteran Stuart Rose.

The move is part of a dual strategy to both leverage synergies across the two giant retail companies and to continue to pay down the debt burden, following the March decision to sell a chunk of EG Group’s U.S. retail and gas station property empire in a sale and leaseback transaction worth $1.5 billion.

The EG Group, whose brands include Euro Garages, Coopland and Leon, plus European franchises including Cinnabon, has over 6,600 sites across the world.

Asda To Acquire EG Group

According to reports, Asda is expected to pay about $1.5 billion for EG, supported by nearly $620 million from U.S.-based investment firm Apollo Global Management
APO
.

Rumors of a potential deal have circulated for months, after the siblings acquired Asda over two years ago for $8.1 billion alongside private equity firm TDR Capital.

As early as January this year there were reports that the partners might combine both profitable businesses in order to refinance the debt on more favorable terms.

Before the deal, EG Group had at least $9 billion of debt due to mature, predominantly in 2025, and the majority is made up of loans with interest pegged to the LIBOR, EURIBOR and SONIA indices which reflect the rate at which banks lend to each other.

The new group will operate over 600 supermarkets, 700 gas station forecourts and over 100 (and counting) convenience stores.

Despite the size of the deal, it is not expected to fall foul of the UK’s competition watchdog, the Competition and Markets Authority (CMA), which already considers the two businesses as a single entity because of their shared ownership.

Union Blasts Potential Merger

However, the GMB union, representing thousands of Asda workers, has called on the government to block the merger.

Nadine Houghton, GMB organizer, argued that it will be bad for consumers and workers and said: “GMB believes this merger requires proper scrutiny from the CMA. We are concerned rising interest rates will leave the debt of the U.K.’s third largest retailer unsustainable.”

Should the deal complete, EG is expected to retain its Blackburn headquarters in the north west of England to operate its international business, which includes forecourts in the U.S. and across Europe, while Asda will trade from its traditional Leeds home.

However, the deal is expected to generate about $125 million of cost savings and to help propel Asda’s pivot into convenience stores.

In February EG Group opened its 100^th Asda On The Move store and confirmed plans for a further 100 of the neighborhood and gas station sites across the U.K. this year.

The Asda On the Move concept launched Fall 2020 and the retailer is also hoping to acquire 132 convenience stores from the Co-op, though it has offered to offload 13 sites to allay CMA concerns. The industry body has until the end of this month to make a final decision.

Last Fall, the grocery group launched its Asda Express convenience brand. The first two stores opened pre-Christmas and Asda plans to open 300 more stores by the end of 2026 after enlisting property advisor CBRE to help find sites.