Billionaire Asda buyers to stump up less than £800m to clinch £6.8bn takeover
Deal fronted by Mohsin and Zuber Issa will be largely funded by asset disposals and debt deals
The private equity-backed billionaires buying Asda will pay less than £800m of their own money to take a controlling stake in the supermarket, a fraction of its £6.8bn valuation, after selling its assets and raising its debts to fund the majority of the purchase price.
Blackburn-based brothers Mohsin and Zuber Issa and the private equity firm TDR Capital are buying the supermarket chain, in the UK’s biggest leveraged buyout in more than a decade.
They have arranged an intricate series of asset disposals and debt deals to fund the bulk of the buyout, allowing the new owners to put in fresh equity equivalent to just 12 per cent of the purchase price, according to documents sent to debt investors this week.
An estimated £165m of fees will be paid to the lawyers, bankers and other advisers on the deal.
The billionaire brothers and their private equity partners have spent the past five years transforming EG Group into one of the world’s largest petrol pump businesses, through a breakneck series of debt-funded acquisitions.
Private equity groups typically fund leveraged buyouts largely with debt, and have previously sold and leased back companies’ property assets, but even by those standards the Asda deal involves a small amount of new equity.
On average, European leveraged buyouts had an equity contribution of more than 50 per cent in 2020, according to S&P Global’s LCD.
The brothers said in a statement on Wednesday that they were “putting in place a robust capital structure” for the grocer and were “confident that external investors will share our belief in Asda’s strong fundamentals and exciting future prospects”.
While their latest transaction values Asda, Britain’s third-largest supermarket, at £6.8bn, the complicated financing structure underpinning the deal will minimise the sums the buyers themselves have to put at risk.
The Issa brothers and TDR are funding most of the deal’s £6.5bn cash consideration by loading up Asda with £3.7bn of junk-rated debt, which will be sold to loan and bond investors this month. The supermarket’s previous owner Walmart is also retaining a minority stake in the business, shaving £500m off the amount the new owners need to fund.
The buyers are raising a further £1.7bn by disposing of some of Asda’s assets, with sale and leasebacks planned for its distribution centres, while its petrol stations are being sold to EG Group.
That leaves just £780m that the two brothers and their private equity partners are funding from their own pockets.
Much of this cash was probably raised in November, when Asda’s new owners sold hundreds of millions of pounds of new “preference shares” — considered halfway between debt and equity — in an offshore holding company that owns EG Group. They said at the time that the cash would not be invested into their petrol stations company.
The deal will leave Asda with more than £3.4bn of net debt, nearly three times the £1.2bn of adjusted earnings before interest, tax, depreciation and amortisation the business generated in the year to the end of September.
Asda’s latest set of accounts, for the year to December 2019, showed no external debt and almost £3.5bn of freehold property assets.