The chairman of Asda has promised that food prices will not go up because of a deal to buy the UK business of its sister company, petrol station operator EG Group, for £2.2bn.
Lord Stuart Rose said that the supermarket group would need to remain competitive, because if not it would risk its ability to attract customers.
“It will not lead to higher prices as a result of this transaction, that is rubbish,” he told reporters on a call following the deal. “We will be what we aim to be and what we’ve always been – a highly competitive player in the sector.”
The deal, announced on Tuesday morning after months of speculation, brings together two parts of the billionaire Issa brothers’ business empire.
They set up EG Group in 2001, building it into a business which has 350 petrol stations and 1,000 food-to-go sites in the UK and Ireland alone.
But the group also has heavy debts and said that it would use the £2.27bn from selling its UK arm, as well as the £1.1bn it gained from a deal in the US, to pay down what it owes.
On the call, Rose - who is also EG chairman - and Mohsin Issa tried to bat away concerns that the deal was simply moving debt from EG Group to Asda.
Rose said: “The primary driver of this deal was creating a business, which is a different business and a multi-channel champion to what we were able to do before by bringing in convenience, etc, etc, and scaling up with opportunities.
“Now, if as a consequence of that, you’ve also got the opportunity of deleveraging on the upside, then what’s wrong with that?”
EG has a debt pile of around £7bn, according to reports.
Its net leverage will fall, meaning the amount of debt it has will be less than five times higher than its earnings before interest, tax, depreciation and amortisation.
But the GMB union has previously said the deal risks lumping part of that debt on to Asda, which already owes around £4.7bn.
Issa said that the deal will let him offer “Asda’s highly competitive fuel” to even more customers.
The companies hope to make synergy savings of around £100m from the deal over the next three years, largely through the combined group’s size.
It did not announce any job cuts, but did not rule them out.
“We’re going to evaluate, we’ve not gone into that detail today,” Issa said. “We’ll look at skill sets, there’s complimentary skill sets, there’s not much of an overlap, in terms of Asda runs big boxes, EG runs convenience stores and food service outlets, so the overlap is very, very minimal.”
The combined company is expected to be worth around £10bn, have revenues of around £30bn and employ in the region of 170,000 people.
There had been speculation of a tie-up between Asda and EG Group since just after the Issa brothers bought the supermarket chain for £6.8bn in 2020.
They swooped on Asda, after former owner Walmart’s plan to sell it to Sainsbury’s was blocked.
Rose said: “This transaction is all about driving growth by bringing Asda’s heritage in value to even more communities and accelerating the growth of its convenience retail business.”
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