The Issa brothers are prepared to sell dozens of petrol stations standing in the way of their £6.8bn takeover of Asda, if talks with competition authorities fail to allay concerns over a hike in fuel prices, The Grocer understands.
This week the Competition & Markets Authority gave the EG Group owners and private equity firm TDR Capital five days to offer “binding proposals” to tackle its concerns and avoid a Phase 2 in-depth probe into the takeover from Walmart.
The Phase 1 investigation found the deal raised local competition concerns in relation to road fuel supply in 36 locations across the UK.
“Right now, we’re concerned the merger could lead to higher prices for motorists in certain parts of the UK,” said Joel Bamford, senior director of mergers. “However, if the companies can provide a clear-cut solution to address our concerns, we won’t carry out an in-depth Phase 2 investigation.”
A source close to the Issas told The Grocer they still hoped to persuade the CMA they should retain the forecourts concerned, stressing they operated “a very different model [from] Asda”.
However, the source said it “would not be the end of the world” for the brothers if they were forced to sell off the sites.
The deal was effectively clinched, say sources, with the CMA finding it did not believe Asda would end its current strategy of being a price leader on fuel on a national level, despite the crossover with the Issas’ forecourt empire.
“The benefits to the Asda brand of maintaining Asda’s current pricing strategy are likely to outweigh these costs,” it said. “Asda is generally perceived as a value-led retailer and a price leader. Its brand and reputation could be affected if the merged entity were to abandon Asda’s current pricing strategy in road fuel.”
Andrew Taylor, a former senior director at the Competition Commission and founder at Aldwych Partners, said the deal “looks pretty straightforward now. TDR/Issa will no doubt offer to sell the 36 or so sites that are concerning the CMA, and the deal will be cleared on this basis.”
But Taylor found the CMA’s confidence that there would not be a national impact on fuel price competition “unusual.”
“This seems to imply that the CMA is confident that EG will run two separate strategies for its petrol station portfolio; a price leadership role for Asda-branded stations to help drive footfall to the supermarkets and a premium strategy for its EG forecourts.
“It’s not impossible to do, but surely EG will at the very least be tempted to push slightly less hard on petrol prices to maximise profits in its petrol station business if it thinks it can do this without undermining the supermarket business.
“Also, how confident is everyone that Asda can maintain its price leadership strategy given the new owners’ financial approach?”
A spokesman for the Issa brothers and TDR Capital said: “We will be working constructively with the CMA over the next 10 days to arrive at a satisfactory outcome for all parties within Phase 1.
“This would provide welcome certainty for our colleagues, suppliers and customers, and allow us to move forward with our exciting plans for investment and growth at Asda.”
In a recent interview with The Grocer, Asda chief executive Roger Burnley vowed the deal would not lead to higher prices at the pumps.
“I can’t comment too much with the CMA investigation ongoing, but we’re absolutely clear that fuel prices and value in fuel, just like value in our stores, is an important part of Asda,” he said. “Our new owners are very clear on that and it won’t change.”