Asda to buy EG Group's UK & Ireland operations in £2.3bn deal

Asda Group said on Tuesday that it has agreed to buy petrol station operator EG Group’s UK and Ireland operations in a £2.27bn deal.

Asda and EG are both owned by the billionaire Issa brothers and private equity firm TDR Capital.

The business being bought consists of 350 petrol filling station sites and more than 1,000 food-to-go locations. Asda said the deal will create a group with combined revenues of nearly £30bn, serving some 21m customers every week.

Following completion, it plans to invest more than £150m within the next three years to fully integrate the combined business.

The supermarket chain said the acquisition will strengthen its financial profile with the contribution of around £195m EBITDA after rents, with additional P&L synergies of circa £100m expected to be generated over the next three years.

Asda co-owner Mohsin Issa said: "Asda is committed to saving customers precious time and money across their shopping baskets and on the forecourt. 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."

EG Group said that proceeds from the deal, along with net proceeds of $1.4bn from the recent sale and lease back transaction in the US, will be used to repay debt and its net leverage will fall to below 5 times.

Co-founder and chief executive Zuber Issa said: "This transaction with Asda represents an important strategic step for EG Group. Following this sale, EG Group will benefit from a significantly strengthened balance sheet, supporting the continued roll out of its successful convenience retail, fuel and foodservice strategy and drive innovation to transform the consumer experience."

EG Group will continue to operate in the US, Australia, Germany, France, Italy, the Netherlands, Luxembourg and Belgium, while also retaining around 30 UK sites, including the first Euro Garages site in Bury.

Shore Capital analyst Clive Black said the deal was "no great surprise but notable nonetheless".

"Given common shareholders, the waves from the combination are likely to be modest, but it should make for a more focused entity technically nudging Asda's market position in the UK," he said.

"With elevated base rates, however, the financial backdrop for Asda/EG worldwide has dramatically changed for the worse and so we shall watch with interest to see if Asda needs to de-leverage further noting too that it continues to search for a CEO. All in all, assuming no craziness from the CMA, famous last words, then we see this as an expected outcome in a competitive but necessarily rational UK grocer & convenience market."