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TDR Capital To Become Majority Owner Of Asda

Asda sign glass lantern

Funds managed by TDR Capital LLP, a leading UK-based private equity firm, have today announced that they have agreed to acquire Zuber Issa’s shares in Asda. Mohsin Issa remains a co-owner in Asda alongside TDR Capital. This brings the ownership of Asda to 67.5% by TDR Capital, 22.5% by Mohsin Issa, and 10% by Walmart Inc. The transaction is set to complete in Q3 2024.

TDR Capital invested in Asda alongside the Issa brothers, and together they took majority ownership of the business in June 2021. Since then, together with the other shareholders, TDR has supported Asda to accelerate its strategy, with a particular focus on delivering low prices to customers and expanding into the fast-growing convenience retail segment.

Gary Lindsay and Tom Mitchell, Managing Partners of TDR Capital, said: “We first invested into Asda over three years ago, seeing a huge opportunity to cement its position as one of the UK’s leading retail brands.”

“By combining our investment and sector expertise with Asda’s heritage of delivering value for customers, we have already made significant progress in transforming Asda. We have added a scale convenience business, grown Asda’s store footprint from 623 to 1,200 stores and food-to-go sites, and launched a hugely successful loyalty app, which now has six million active customers, accounting for around half of total sales. We remain focused on investing in Asda’s stores and online, as well as its colleagues through the highest pay in the traditional supermarket sector, to drive sustainable, long-term growth.”

“As majority owners, we will continue to work closely with the Asda management team and colleagues across the business to support the ambitious strategy, which we believe is the right one to continue to move Asda forward.”

Stuart Rose, Chairman at Asda, said: “On behalf of the Board, I welcome TDR’s increased investment in Asda – which is a clear sign of its commitment to the business. Asda’s heritage is in delivering great value for customers on a daily basis across its entire proposition from groceries to fashion and food-to-go – and the Board has never been more committed to deliver on this promise. The Board and shareholders continue to put in place the building blocks to position Asda for long-term success and that is good news for colleagues, customers, suppliers and other business partners.”

Mohsin Issa, co-owner of Asda, said: "Today's announcement further underlines my own and TDR's confidence both in Asda and the UK consumer market. As a shareholder group, we are excited about the growth journey we are on. Asda is an iconic British brand and we are committed to setting it up for long-term success and delivering great value for customers across the UK. To that end, I am incredibly proud of the investments we have already made in transforming the Asda business, including the launch of the new Asda Express convenience format, the Asda Rewards customer loyalty scheme and the £800m investment in a best in class IT infrastructure to bring new data and insight capabilities. Above all, I am proud and grateful for the everyday commitment and loyalty of our Asda colleagues and their dedication to our customers. I also want to add my personal support and best wishes for Zuber’s plans as we continue our successful family partnership, working as partners on our personal co-investments, family office philanthropy and Issa Foundation projects.”

Zuber Issa, co-founder and co-CEO of EG Group, said: “Since Mohsin and I, alongside TDR, took ownership of Asda, we have driven a period of significant investment and entrepreneurial growth activity. Notably, Asda acquired a market-leading UK convenience retail and foodservice store business from EG Group. With the divestment of my Asda shares, I will now turn my attention towards leading and managing the remaining EG UK forecourt sites that I have personally acquired, and spend more time on my charitable endeavours. I am pleased to see TDR increasing its investment in Asda. With Mohsin and TDR’s ongoing focus and shareholding, I am confident that Asda will achieve its growth ambitions.”

Active CEO search

Asda is undertaking an extensive international executive search to find a permanent CEO to lead the business in its next phase of growth. This is a priority for the Asda Board who are committed to taking a deliberate and thoughtful approach to hire the best possible candidate. Asda will update in due course.

Update on strategy since 2021

The growth strategy has been progressing well, with a £3.5bn investment programme aimed at growing the business organically and via strategic acquisitions – including the EG UK and the Co-op sites on petrol fuel stations – since the current shareholders took full ownership in June 2021.

This significant investment programme has also included the following:

• Since the launch of the supermarket’s loyalty app, Asda Rewards, in July 2022, customers have saved £469m in Cashpots to spend in store or online, with about 6 million regular users.

• Asda took full control of 116 convenience stores and three development sites from the Co-op in FY23 and acquired 356 predominantly freehold sites of EG Group’s UK business.

o These acquisitions will accelerate the supermarket’s growth in the convenience and food-to-go sectors.

• Asda continues to invest in enhancing the quality of its food, building on the earlier successful launch of its budget-friendly Just Essentials brand in May 2022, with a significant own-label transformation programme.

• In Q1 2024, Asda announced a record £150m investment in retail pay to make it the highest paying traditional supermarket.

o Rates increasing by 8.4% for hourly-paid store colleagues in Asda Retail and Asda Express, rising to £12.04 from 1st July. Rates inside the M25 will rise to £13.21.

o Total increase of 28% in retail pay since the acquisition of Asda by the Issa brothers and TDR Capital completed in June 2021, with a total pay investment of almost £415m.

Continued underlying profit growth

Asda recently announced its full year results for the period ending 31 December 2023, delivering a 24% increase in adjusted EBITDA after rent to £1.078bn. Total sales, excluding fuel, increased by 7.1% to £21.9bn last year, boosted by a strong performance from George at Asda – the UK’s third-largest clothing retailer by sales volumes – and the supermarket reducing prices on more than 800 popular everyday products in 2023. Asda grew LFL sales (excluding fuel) by 5.4% in FY23, as customers responded to the supermarket’s ongoing investment in value last year and previously during the toughest times of the cost-of-living crisis.

Strengthened balance sheet

Today’s announcement follows Asda’s recent successful refinancing of more than £3.2bn of its debt, reflecting strong demand from investors and pushing out the majority of its maturities into the next decade. The supermarket also recently secured an upgrade to its corporate rating from Moody’s to B1 from B2, while Fitch Ratings raised their outlook on Asda’s Long-Term IDR to positive from stable and affirmed the IDR rating at B+ and S&P Global Ratings assigned a B+ long-term issuer rating with a stable outlook.

The supermarket’s improved cashflow generation led to a further reduction in Asda’s total net leverage as a multiple of adjusted EBITDA after rent to 3.0x at the end of Q124, compared with 3.9x at the close of 2022.

• Asda’s net debt at the end of Q124 was £3.8bn, net of more than £1bn cash on the balance sheet – and the business is fully committed to further deleveraging.

Source : Asda

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07 June 2024

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