A multi-billion swoop for Asda could deepen a price war between Britain’s supermarkets this Christmas, sources have revealed.
The frontrunners to take control of Asda are buyout giants Lone Star and Apollo Global Management, which have both submitted bids thought to be around £6.5billion to buy a majority stake in the supermarket chain from its US owner Walmart.
Lone Star’s management, who are being advised by Asda’s former chief executive Paul Mason, believe Asda is the most resilient of the UK’s Big Four supermarkets as customers seek out cheaper deals.
Swoop: Lone Star’s management believe Asda is the most resilient of the UK’s Big Four supermarkets
It sees an opportunity to work alongside Walmart – which will retain a minority stake – to review pricing across Asda’s ranges to make it even more competitive against discounters Aldi and Lidl.
The Mail on Sunday revealed last week that grocers including Morrisons and Tesco are sharpening prices ahead of what is expected to be a major price-cutting campaign this Christmas.
A supermarket source said: ‘The value end of the market is the most attractive – and that will increase if we go into recession. They [Lone Star] might look at investment in customer pricing – there are levers you can pull.’
Lone Star would also invest in the quality and freshness of Asda’s products – particularly its own-label range – and its George fashion and homeware label. The source added: ‘Lone Star don’t see Asda as a big turnaround job. They want to support and accelerate the management team’s strategy to maintain price competitiveness.’
Lone Star has a vast property arm including the Quintain UK residential property firm, which owns Britain’s biggest build-to-let development at Wembley Park. It is understood Lone Star could look at turning Asda’s freehold sites into mixed-use developments with housing.
Asda is Britain’s third largest supermarket chain behind Tesco and Sainsbury’s. It has been owned by Walmart since 1999 but the US retail giant has been looking to reduce its stake since regulators blocked Asda’s £7.3billion merger with Sainsbury’s last year.
New York-listed Apollo, which has $414billion under management, owns 32 Casino supermarkets in France. It is lining up £3.75billion of debt to fund its proposed deal secured against Asda’s 300 stores and its distribution centres.
It is being advised by former Debenhams chief executive Rob Templeman. A retail source said the financing approach ‘helps free cash flow and reflects Apollo’s view that there is no need for real estate divestments to fund the deal’.
Apollo would split Asda into an operating company and a property company and float Asda within three to five years.
In February, Walmart said it ‘firmly believes an IPO is an attractive long-term objective for Asda’.
A deal could be announced by the end of the month.
Billionaire brothers Mohsin and Zuber Issa, who control the Euro Garages group, were tipped to be preparing a proposal ahead of last Monday’s deadline for bids. But a spokesman confirmed last night: ‘EG Group did not submit a bid for Asda.’ Lone Star and Apollo declined to comment.