Yahoo Finance Asda takeover by Issa brothers could lead to higher fuel prices, says CMA
The £6.8bn takeover of Asda by a private equity consortium fronted by the Blackburn-based petrol station billionaire brothers Mohsin and Zuber Issa could lead to higher fuel prices in some parts of the UK, the UK competition watchdog has warned.
The Issa brothers and TDR Capital co-own the petrol station operator EG Group, which has 395 UK petrol stations while Asda owns 323. The Competition and Markets Authority (CMA) said many of the forecourts were located in the same parts of the country and it was concerned about these overlaps.
Joel Bamford, the CMA’s senior director of mergers, said: “Our job is to protect consumers by making sure there continues to be strong competition between petrol stations, which leads to lower prices at the pump.Right now, we’re concerned the merger could lead to higher prices for motorists in certain parts of the UK.
The CMA embarked on a preliminary “phase 1” investigation in December after the European commission referred the deal. The buyers now have five working days to put forward a proposal that addresses the concerns raised. The CMA then has a further five working days to decide whether to accept the plan or refer the deal for an in-depth phase 2 investigation.
A spokesperson for the Issa brothers and TDR Capital said they would work “constructively with the CMA over the course of the next 10 days in order to arrive at a satisfactory outcome for all parties within phase 1”.
The CMA is concerned about the lessening of competition in 37 areas, with the consortium expected to agree to divest the problem sites. While selling fuel is not lucrative for supermarkets it is a key draw for shoppers and Asda’s new owners are expected to want to hang on to the forecourts beside its shops.
The buyers of Asda would not be doing cartwheels over having to comply with the CMA’s demands but would be eager to avoid an onerous phase 2 investigation said Shore Capital analyst Clive Black. “To put a spanner in the potential acquisition of the no3 grocer and no2 clothing retailer by volume in the UK for 37 garages would be skew-whiff to my mind.”
The Issa brothers, who leased their first petrol station in 1999, now have more than 6,000 across 10 countries. The move on Asda has not stopped the expansion of EG Group, which has just bought the fast food chain Leon Restaurants for £100m and is also trying to buy the struggling Caffè Nero chain.
The sale of Asda to the Issas and TDR Capital is the biggest British leveraged buyout in more than 10 years. The investors have put less than £800m of their own money into the deal, which is backed with nearly £4bn of debt and £1.7bn raised by selling off Asda assets including its petrol stations. They sold the Asda forecourts to themselves, with EG Group paying £750m for Asda’s fuel business.
The sale has already heralded senior management changes at Asda as Roger Burnley, its chief executive of three years, has already announced that he will depart next year. Rob McWilliam, its chief financial officer, is also going.
The change of ownerships adds to the uncertainty faced by the staff who work in Asda’s 341 supermarkets and who have in recent years faced successive rounds of job cuts.
Last week, Asda said it planned to stop baking bread in its stores, putting 1,200 jobs at risk. The latest shake-up comes less than two months after Asda said 5,000 jobs were at risk from the closures of two warehouses and back-office changes.
