Supermarket chain Asda‘s £2.27bn deal to acquire hundreds more UK petrol stations and more than a thousand convenience shops will not lead to more expensive petrol and dearer groceries but instead create an unprecedented “consumer champion”, its chairman, Stuart Rose, has claimed.
The deal, which will see Asda, the UK’s third-largest grocery retailer, buy around 350 petrol stations and more than 1,000 “food-to-go” locations from its sister company EG UK Group, is set to result in a combined group serving up to 21 million customers every week with revenues of nearly £30bn.
Under the deal, the new combined group will operate about 640 supermarkets, 700 petrol forecourts and 100 convenience stores.
There are fears the size of the deal creates competition problems and lead to drivers paying more for fuel. Asda previously allayed competition concerns after taking over 130 petrol stations from the Co-op after the watchdog Competition and Markets Authority raised concerns. That deal went through after Asda handed back 13 sites to avoid reducing competition for consumers.
The Competition and Markets Authority (CMA) is currently investigating all supermarkets over high food and fuel prices. Asda said it remains “committed to the lowest supermarket fuel prices” and says the deal will bring “its highly competitive fuel offer to many more customers”.
“Asda’s acquisition of EG UK and Ireland will create a consumer champion like the UK has never seen. Throughout my career in retail – one thing has always been true, that meeting the evolving needs of customers is the route to growth,” Mr Rose said.
“This transaction is all about driving growth by bringing Asda’s heritage in value to even more communities and accelerating the growth of its convenience retail business.”
Asda and EG are both owned by the Blackburn-based billionaire brothers Zuber and Mohsin Issa and London-based private equity group TDR Capital.
Asda co-owner, Mohin Issa, said the deal will be good for motorists as well as shoppers. “The combination of Asda and EG UK&I will be positive news for motorists, as we will be able to bring Asda’s highly competitive fuel offer to even more customers.”
Gary Lindsay of TDR Capital said the combination of the two companies would create a “convenience and food retailing champion”. “The two businesses are highly complementary, bringing together Asda’s traditional focus on mid-to-large sized supermarkets and EG UK&I’s on convenience retail, foodservice and fuel.”
Under the deal, EG employees at the sites being sold will move to Asda, a move that was criticised by the GMB union, which represents thousands of Asda staff and which called it a bad deal for workers. They have accused the Issa brothers and TDR of wanting to use Asda as “a cash cow to pay off their debts”.
Nadine Houghton, the union’s national officer, said: “GMB believes this merger requires proper scrutiny from the CMA. We are concerned rising interest rates will leave the debt of the UK’s third largest retailer unsustainable.
“More than 7,000 Asda colleagues are already facing hire and rehire – this slashing of terms and conditions is just the tip of the iceberg. Our priority is to protect and improve our members’ jobs and conditions and we believe this merger makes that harder.”
Asda also reported “strong” like-for-like sales growth up by 7.8 per cent in the opening three months of this year and claimed it had gained market share from its competitors. It said total revenues, excluding fuel sales, grew 8 per cent to £5bn.
Mr Rose denied the deal was about reducing EG’s debt pile, which is said to be between £6-7bn after the Issa brothers and TDR borrowed to finance their purchase of Asda. After the deal the supermarkets’ debt will be less than five times its earnings.