Asda’s private equity owner has claimed the value of its investment in the supermarket chain has soared by nearly 20 times as it gears up for a potential bid for the pharmacy chain Boots.
The London-based TDR Capital said its stake as co-owner of the grocer was now worth €1.7bn (£1.4bn) on paper, or 19.8 times its original investment, indicating that the finance group put in just over £70m of fresh cash to back the deal, according to documents seen by the Financial Times.
The presentation to investors paints a rosy picture of TDR’s investment in Asda as it gears up to potentially raise more funds to back a £6bn buyout of Boots. It is one of four interested parties in the British retailer.
The details behind the claim are not clear, as TDR put in an estimated £390m of equity in total to back the £6.8bn buyout of Asda, the same amount as its partners the Issa brothers.
Industry insiders said the £70m of fresh investment in the Asda buyout indicated by TDR’s documents could have been supplemented by proceeds from other investments including EG Group, the petrol forecourts business it also owns in partnership with the Issa brothers.
Analysts said they were skeptical of the raised valuation of Asda indicated by the documents.
One said: “Asda’s performance has been really weak in the market according to [research firm] Kantar. It has structural issues with its less customers more squeezed by the rising cost of living. The question is could they sell it at this price? I think they would struggle to sell it for ages.”
The value of TDR’s stake was thought to have been increased partly to reflect the £7bn buyout of Morrisons in October, which valued that chain at a higher amount relative to core earnings than the original Asda deal.
However, Morrisons recently warned that its profits were likely to take a significant hit this year as the cost of living crisis and disruption because of the war in Ukraine weigh on the grocery market.
The UK’s biggest supermarket chain, Tesco, also warned of “significant uncertainties” at its annual results last week as its customers tighten their belts to cope with rising inflation.
Asda’s earnings have improved, while the sale of a group of 27 warehouses to reduce debts fetched £1.7bn last year, beating expectations by more than £700m.
