Asda’s owners are exploring merging the business with petrol forecourts business EG Group before EG’s 2025’s £7bn refinancing, The Times reported on Saturday.
The two businesses are both jointly owned by Mohsin and Zuber Issa and private-equity company TDR Capital.
The paper said the merger would create a business worth between £11bn and £13bn, with 581 supermarkets, 700 petrol forecourts and more than 100 convenience stores.
By combining the two businesses – both of which are profitable – the billionaire owners hope to refinance EG Group’s debt on more favourable terms, The Times reported. EG Group has £7bn of debt falling due in 2025.
The brothers bought Asda two years ago in a £6.8bn deal. Since then 70 ‘Asda On the Move’ convenience stores have been opened in EG petrol stations.
The Issa brothers rapidly expanded their business as interest rates remained low. However, as rates rise, they will face a heavy refinancing bill particularly as they do not have interest rate hedges in place, the newspaper reported.
Citing Moody’s Roberto Pozzi, The Times said operating profit will only just cover EG’s interest expenses, which are likely to rise by around $120m to reach $800m (£645m) this year.
The deal may be structured as an acquisition of EG UK by Asda. The brothers are being advised by bankers Barclays and Rothschild.
The Times reported that the competition regulator’s view is unclear at this stage, although last week the regulator launched an inquiry into Asda’s acquisition of the Co-op’s forecourt sites.
In October last year, Asda bought 129 of the Co-op’s petrol forecourt sites representing five per cent of Co-op’s retail estate of 2,564 stores in a £611m deal.