Walmart Inc. is proceeding with the planned sale of U.K. supermarket chain Asda after attracting initial bids from three buyout firms, even as tightening credit threatens to hamper debt-fueled dealmaking, people familiar with the matter said.
Apollo Global Management Inc., Lone Star Funds and TDR Capital each submitted first-round offers for Asda and have been invited to join the next round of bidding, the people said. A deal could value the business at more than 7 billion pounds ($8.6 billion), according to one of the people, who asked not to be identified because the information is private.
TDR is teaming up with its portfolio company EG Group, a British gas station owner led by billionaire brothers Mohsin and Zuber Issa, the people said. Some suitors are concerned about the possibility that the market volatility triggered by the coronavirus outbreak will hurt their access to cheap financing, and there’s no certainty they will proceed with binding offers for the business, the people said.
No final decisions have been made, and Walmart could decide to keep the business for longer if bids don’t meet its expectations, according to the people. Representatives for Apollo, Asda, EG Group, TDR Capital and Walmart declined to comment. Lone Star didn’t immediately respond to emailed queries.
Discount Chains
U.K. grocers are facing surging demand from shoppers stockpiling essential items. That’s made them a bright spot in the consumer industry, which overall has been hurt as the coronavirus outbreak leads to shop closures and less foot traffic. Still, the high demand for everyday goods is putting immense pressure on supply chains, and over the weekend some of the country’s largest supermarket chains published a letter in national newspapers asking consumers to stop stockpiling.
Grocery spending in Great Britain rose 0.7% in the 12 weeks to February 23, according to industry researcher Kantar. Growing concerns about the coronavirus caused hand sanitizer sales to surge 255% in February, while sales of liquid soap rose 7%, Kantar data show.
Asda is one of the “Big Four” British grocers alongside Tesco Plc, Sainsbury and Wm Morrison Supermarkets Plc. As the most value-oriented among that group, it’s been heavily exposed to pressure from discount chains Aldi and Lidl. U.K. antitrust authorities last year blocked Walmart’s plan to combine Asda with J Sainsbury Plc in a 7.3 billion-pound deal, saying it would lead to higher prices and less choice for shoppers.
Acquisition Spree
Apollo and Lone Star often seek to buy troubled companies at a discounted price and profit from turning around their operations, and it’s unclear whether Walmart will be willing to sell Asda at a low enough price to entice them.
EG Group was formed in 2016 when Euro Garages, run by the Issa brothers, merged with TDR Capital’s European Forecourt Retail Group. It has grown into one of the world’s largest independent gas station chains through a series of debt-fueled acquisitions and now operate about 5,000 fuel station and convenience store sites across Europe, North America and Australia.
The British company is now bidding for Caltex Australia Ltd., the fuel retailer with a market value of about A$5.7 billion ($3.5 billion). TDR Capital has also been weighing a deal a deal to acquire Marathon Petroleum Corp.’s Speedway gas-station division, which could be valued at upwards of $20 billion, and merge it with EG Group, Bloomberg News reported last month.
