Competition watchdog investigates £6.8bn takeover of Asda

The competition watchdog is investigating the £6.8bn takeover of Asda by a private equity consortium fronted by the Blackburn-based petrol station billionaires Mohsin and Zuber Issa.

The deal is the second attempt by US retail giant Walmart to sell the Leeds-based supermarket chain. Last year the Competition and Markets Authority (CMA) blocked the first try – an audacious attempt to merge Asda with larger rival Sainsbury’s that would have created a new market leader.

The sale of Asda to the Issas and TDR Capital, who already co-own the EG Group forecourt business, was announced in the autumn. They are to own equal stakes in the business, with Walmart retaining a minority holding. The deal is being financed with £4bn of debt.

The CMA said it had embarked on a “phase 1” investigation into the Asda deal after the European commission referred the deal. It will now look at whether the acquisition will lead to a “substantial lessening of competition” in the UK, with interested parties asked to submit their comments before Christmas.

New Asda owners Mohsin and Zuber Issa – the Blackburn billionaire brothers

If at the end of this preliminary stage the watchdog is concerned about the sale of the UK’s third largest supermarket chain, with annual sales of £23bn, it will press the button on a more in-depth “phase 2” inquiry. The CMA must make a decision by 18 February.

The Issas leased their first petrol station in 1999 and today have more than 6,000 dotted across 10 countries. However, EG’s rapid expansion has been funded by loans, with last year’s accounts showing a debt pile of about £7bn.

On the surface, the sale of Asda to the consortium is not as controversial as last year’s merger which would have created a supermarket giant bigger than Tesco, the UK’s biggest retailer. One area of concern, however, might be the scale and overlap of their respective fuel businesses. Asda runs 320 filling stations while EG has a UK network of 341.

The consortium says Asda will continue to be based in Leeds and that Roger Burnley will be retained as chief executive. It has also pledged to invest £1bn over three years, with a focus on growing Asda’s web and convenience arms. A new convenience brand, Asda on the Move, is already being trialled in a handful of EG’s forecourts.

A spokesman for the Issa brothers and TDR Capital said they had expected the CMA to investigate the deal. “We are looking forward to working constructively with the CMA to address any questions they may have,” he added.

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