KKR circles Asda after Sainsbury’s deal setback
Private equity group confirms interest but rivals say acquisition ‘too tricky, too big’
Private equity group KKR is exploring a bid for UK supermarket chain Asda after a planned £7.3bn takeover of the UK’s third-biggest grocer by its larger rival J Sainsbury looks set to collapse.
People with knowledge of KKR’s thinking confirmed that the US group is monitoring the situation, but cautioned that the interest was early-stage and there was no certainty it would proceed with an offer for the Walmart-owned grocer.
The Sunday Times, which first reported KKR’s interest, said Tony De Nunzio, a senior adviser at the buyout group, would become the company’s chairman if it manages to strike a deal. Mr De Nunzio served as Asda’s finance director and later its chief executive before stepping down in 2005.
KKR declined to comment. Other private equity firms were quick to rule out their own interest on Sunday, explaining that there were many challenges for an outside investor to put together a successful deal.
Executives at these firms highlighted the ruthless competition in the fragmented UK grocery market sector and cited the frequent price wars in the industry. A takeover of Asda would be “too tricky, too big in a very competitive space”, said one buyout executive.
KKR has experience operating in the retail sector. Its acquisition of pharmacy chain Alliance Boots and its subsequent combination with US rival Walgreens stands as its most profitable investment over the past three decades.
But it is unlikely to be able to match the £7.3bn value implied by Sainsbury’s cash-and-stock bid, since KKR would not be able to achieve the same level of savings as a direct rival.
UK regulators last week dealt a near-fatal blow to Sainsbury’s takeover of Asda, prompting speculation about Walmart’s intention for the supermarket group it has owned since 1999.
The Competition and Markets Authority, in its provisional findings, said the deal would reduce competition nationally and in more than 600 local areas. The regulator called for the parties to pursue large-scale store disposals and even sell one of its brands to create to a new competitor, if they wanted the deal approved.
Analysts expect the two companies to see through the merger review process, which completes on April 30, but speculation has already turned to Asda’s fate should the deal collapse.
Many interpreted that the sale to Sainsbury’s showed that Walmart was no longer interested in directly operating the supermarket chain. Under the terms of the transaction, Walmart would have owned 40 per cent of the combined group’s stock but its voting interest would be restricted to 29.9 per cent.
Walmart is under no pressure to sell Leeds-based Asda, which has remained cash generative even as it ceded customers to rivals Aldi and Lidl. The grocer’s market share was stable at about 15 per cent in 2018, ending the severe reversals of previous years. It also notched up rising same-store sales, helped by UK food price inflation.