Asda comes back to Britain

Walmart once tried – and failed – to merge Asda, its UK operation, with Sainsbury’s. Now it has agreed to sell the supermarket chain to “two billionaire brothers from Blackburn”, Moshin and Zuber Issa, and the private-equity firm TDR Capital, says Zoe Wood in The Guardian.

The deal, which will see Walmart retain a minority stake in the company, as well as a seat on the board, values Asda at around £6.8bn, only “slightly more” than the £6.7bn that Walmart paid in 1999. This reflects the fact that, even with Walmart’s “financial power”, Asda has “struggled” in the “ferociously competitive” grocery market.

The “self-made” Issas are touted by Walmart as the “secret sauce” of the deal, says Deirdre Hipwell on Bloomberg. This is because Walmart hopes that the brothers can use their ownership of EG Group, which operates food outlets and stores on over 6,000 different sites, including petrol stations and highway service areas, to help Asda break into the “lucrative convenience-store market”. However, Britain’s convenience-store arena is “crowded with competitors”, with many of the best sites already “snapped up”, while there is also evidence that the rapid growth “may be poised to cool”. Covid-19 has also moved a lot of food shopping online.

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The government has welcomed Asda returning to British ownership, says Christopher Williams in The Sunday Telegraph. But the cost of the deal is fuelled by £4bn of junk bonds and leveraged loans, so the Exchequer will be “out of pocket for some time”. The cost of the borrowing will be offset against Asda’s profits.