In the News

Leveraged buy-outs - How to buy a £6.8bn supermarket for £780m

Geoff Riley

16th February 2021

This BBC article dissects the leveraged buy out that has been used by the Issa Brothers to make an agreed bid to Walmart to buy Asda.

The deal is worth around £7 billion but they have put up only around 10 percent of that with the majority of finance coming from raising new corporate debt in the capital markets at low interest rates.

The scale of the borrowing raises fears that Asda will be hamstrung in competing with the likes of the deep discounters Aldi and Lidl and in catching up in the convenience store format with the likes of Tesco and Sainsbury's.

But given that Asda's new owners are big players in the metro retail sector, expect to see a lot more of Asda at petrol stations around the country.

This is a good article to read for applied context on how mergers and takeovers are financed and some of the fundamental risks behind highly-geared acquisitions.

One risk is obvious - the Issa brothers have made their millions from petrol retailing - but revenues and profits from petrol must surely be in long-term decline with the rapid growth of electric vehicles?

Geoff Riley

Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.

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