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Private equity firm Lone Star has pulled out of the race to buy Asda, dealing a blow to Walmart’s second attempt in two years to sell the UK supermarket chain.
The US-based buyout group failed to reach agreement on price, or the potential costs of a long-running equal-pay dispute, according to one person briefed on the matter.
Apollo, the New York-based private equity group, is still in the running for Asda, which is expected to be valued at about £6.5bn. The sale process recently restarted after the pandemic forced US retailer Walmart to put it on hold this spring and a decision is expected by the end of this month.
Private equity firm TDR, which owns a 50 per cent stake in the petrol stations business EG Group, had held talks with EG’s co-founders Mohsin and Zuber Issa about a bid for Asda, another person briefed on the matter said. It is not clear whether a bid was made or if they are still interested. The talks were about a bid that would be part-funded by the Issa brothers’ personal wealth rather than EG Group’s funds, the person said.
An earlier attempt to sell Asda to rival J Sainsbury was blocked by the UK’s Competition and Markets Authority last year.
The latest sale attempt comes at a time when supermarkets have experienced a surge in demand both online and in stores, as consumers have stocked up during the lockdown and relied more heavily on home cooking.
However, the share prices of Asda’s UK-listed rivals, such as Tesco, Sainsbury and Wm Morrison, have fallen by between 10 and 15 per cent since the start of 2020. Supermarkets have mostly forecast flat profits this year and investors are growing concerned that a Covid-induced economic downturn will trigger margin-shredding price wars.
Apollo has appointed Rob Templeman, who led Debenhams during its private equity ownership and its 2006 stock market listing, to advise it on a bid. It has already lined up a £3.75bn debt package to fund the purchase, most of which is secured against the value of stores, a person close to the process said. It plans to launch an initial public offering of the retailer in three to five years if it buys the business.
Asda has a 14 per cent share of the UK grocery market, behind Tesco and Sainsbury, according to data from Kantar. Its unusually high number of large freehold sites make it an attractive target for private equity because such assets can be used as loan collateral or sold and leased back.
However, Asda and other “Big Four” supermarkets are facing equal-pay lawsuits from mostly female checkout staff, who argue they have been discriminated against because warehouse operatives — who are mostly male — are paid more.
A final ruling could be some way off, but if the shop workers win, their lawyers Leigh Day says the retail sector could face £8bn in compensation payments.
The Asda sale could also be an early test for a new “public interest consideration” introduced in June by the Department for Business, Energy and Industrial Strategy.
The rule, intended to ensure that takeovers do not impede the containment of a health emergency, could allow the government to intervene in cases where the supply of food is involved. One senior competition lawyer said invoking the provision “would be punchy” but the wording of the guidance suggested it was an option.
Lone Star, Apollo and Asda declined to comment.
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