After 21 years in the competitive UK grocery industry, Walmart Inc. has agreed to sell control of grocer Asda to TDR Capital and two brothers who made their fortune in gas stations.
TDR is teaming up with the Issa brothers, the British entrepreneurs behind convenience-store operator EG Group, to buy a majority stake in Asda for 6.8 billion pounds ($8.8 billion). Walmart said on Friday that it expects a non-cash loss of around $2.5 billion as it relinquishes management of a business that has struggled to compete with German discounters Aldi and Lidl.
In an interview, Judith McKenna, CEO of Walmart International, said, "We chose TDR and the Issa brothers because they gave the best value and it was crucial for us to find a partner for asda total package who truly believed in the long-term future of this business."
For at least two years, the world's largest retailer had been looking to sell Asda and is now free to focus on the United States, where it generates three-quarters of its revenue. To better compete with Amazon Prime, the company is launching a new subscription service in the United States, has made a joint bid with Oracle for a minority share in video app TikTok, and aims to enter the Georgia market for privately managed Medicare Advantage plans.
In a note, Rupesh Parikh, an analyst at Oppenheimer & Co., wrote, "The sale is very much consistent with the company's strategy, and should help to free up more resources to accelerate investments in digital assets."
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In New York, Walmart's stock dropped as much as 2.1 percent. The sale, according to the business, will reduce earnings per share by around 25 cents in the first year after it closes.
Since 1999, when it paid 6.7 billion pounds for Asda, the retailer has owned the supermarket business. Because its prices are often lower, Asda has been more vulnerable to Aldi and Lidl than Tesco Plc and J Sainsbury Plc. Meanwhile, those competitors have made large acquisitions in order to strengthen their negotiating position with suppliers.
In 2019, antitrust officials denied a deal to sell Asda to Sainsbury's for £7.3 billion. The coronavirus epidemic halted talks on a sale of the supermarket for several months, but Walmart restarted them this year. Lone Star Funds and Apollo Global Management Inc. were also in the running for the contract.
According to Bloomberg News, the TDR-led investor group beat out its competitors to become the chosen buyer four days ago. The corporations did not reveal the extent of the new owners' holdings or the amount they will pay.
Walmart is keeping a minority share because it wants to maintain a relationship to Asda and the United Kingdom, which has previously been a “powerhouse of innovation” for the company, according to McKenna.
“Great to see Asda returning to majority UK ownership for the first time in two decades,” tweeted UK Chancellor of the Exchequer Rishi Sunak.
Over the next three years, the retailer expects to invest £1 billion in its company and supply chain.
According to persons familiar with the subject who asked not to be identified because the information is confidential, the buyers are seeking roughly 4 billion pounds in debt financing from banks such as Barclays, Bank of America, Deutsche Bank, Lloyds, Morgan Stanley, and Rabobank.
Walmart was advised by Rothschild & Co., while TDR was advised by Bank of America Corp. and Morgan Stanley, according to sources.
According to Bloomberg data, private equity firms spent $114 billion in the first nine months of the year acquiring companies based in Europe. While the total was down 8% year over year because to the pandemic-related drop in deals, dealmakers foresee a rebound as private equity firms aim to deploy about $1.3 trillion in unspent cash.
Asda's customers will have to deal with the aftermath from a discrimination lawsuit filed by more than 15,000 largely female shop employees. The union claims that they should be paid the same as the company's warehouse workers, who are mostly men. The case is being examined by the Supreme Court of the United Kingdom. If Asda loses, it may be forced to pay a large amount in liabilities.
