The billionaire petrol station tycoons the Issa brothers are on the verge of finalising their £6.8bn debt-fuelled buyout of the supermarket chain Asda, after offering to address concerns raised by the competition regulator.
The Blackburn-based brothers, who leased their first petrol station in 1999, are in the midst of a buying spree that has seen them snap up upmarket the fast food chain Leon, with Caffè Nero thought to be next on their shopping list.
Their most ambitious deal yet now looks certain to go ahead virtually unabridged, after they and their private equity partner TDR Capital offered to sell 27 petrol stations to allay competition concerns.
The purchase of Asda, from the US retail giant Walmart, would have seen the supermarket’s 323 petrol stations come under the same ownership as the 395 held by EG Group, owned by the Issas and TDR.
The two firms’ networks overlap in 36 areas, the Competition and Markets Authority said, as well as in a specific type of fuel called auto-LPG in another area.
On Wednesday, the CMA said there was reasonable grounds to consider accepting an offer to sell 27 petrol stations to allay its concerns.
While the CMA’s decision has yet to be finalised, it has effectively given the green light for the £6.8bn Asda takeover, the UK’s largest leveraged buyout for 10 years.
TDR and the Issas are putting up £780m of cash, with the rest funded via a complex structure that includes £3.5bn of new debt, made up of bonds and an €850m (£749m) loan.
Walmart, the current owner of Asda, has contributed £500m of equity to retain a minority stake in its UK arm.
EG Group is buying Asda’s petrol stations for £750m, while Mohsin and Zuber Issa have said they plan to sell off Asda’s distribution centres for £950m.
The expected proceeds from the sale of the petrol stations and distribution centres will be used to pay off two additional bridging loans being taken on to finance the takeover.
The plan will leave Asda liable for loans equivalent to about four times its earnings of £1.2bn – giving it more than double the debt burden of its major supermarket rivals.
This degree of leverage is likely to raise concerns, particularly as EG Group has also funded its rapid expansion with borrowing. Last year’s accounts showed a debt pile of about £7bn.
The change of ownerships adds to the uncertainty faced by the staff who work in Asda’s 341 supermarkets and who have in recent years faced successive rounds of job cuts.
Last month, Asda said it planned to stop baking bread in its stores, putting 1,200 jobs at risk, while the supermarket said in February that 5,000 jobs were at risk from the closures of two warehouses and back-office changes.