UK’s Asda to buy EG petrol stations unit in $2.9-billion deal

UK’s Asda to buy EG petrol stations unit in $2.9-billion deal

LONDON (Reuters) -British supermarket Asda said it would buy the bulk of petrol station operator EG Group’s UK and Ireland business to speed up its move into the convenience sector, creating a company with combined revenue of nearly 30 billion pounds ($38 billion).

Asda, Britain’s third-largest grocer, and EG are both owned by brothers Zuber and Mohsin Issa and private equity group TDR Capital. The unit of around 350 petrol stations and over 1,000 food-to-go locations will be valued at 2.27 billion pounds.

The deal will help spur Asda in its drive to overtake Sainsbury’s and become Britain’s No. 2 supermarket as it rolls out the Asda Express across the EG petrol estate. EG will pay down debt.

“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,” said Asda chairman Stuart Rose.

The Issa brothers bought Asda in 2021 and have already converted 166 EG sites to the “Asda on the Move” format.

Tesco leads the UK grocery market with a 27.1% share, according to the most recent data by Kantar. Sainsbury’s holds 14.8%, ahead of Asda’s 13.9%.

The deal comes as consumers grapple with a cost-of-living crisis that has left grocers juggling surging food prices with a need to pay higher wages, while facing fierce pricing competition from German discount groups Aldi and Lidl.

Asda, which like rivals is competitive on the price of petrol at its large stores, said it planned to invest more than 150 million pounds within the next three years to integrate EG.

Asda’s shareholders, which include its former owner U.S. retail giant Walmart Inc, will provide around 450 million pounds of additional equity for the deal, it said. The grocer reported like-for-like sales growth of 7.8% in the three months through March compared with the previous year, while total revenues excluding fuel increased by 8% to 5.0 billion pounds.

EG has said it will use the proceeds from the sale to help pay down debt, following a separate deal involving its U.S. operations earlier in the year.

EG’s net debt stood at close to $9.7 billion at the end of last year, more than seven times its adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) for 2022. It said the group’s net leverage would fall to below 5 times.

($1 = 0.7923 pounds)

(Reporting by Paul Sandle; additional reporting by Pablo Mayo Cerqueiro; editing by Kate Holton and Bernadette Baum)