Bringing the two groups together makes sense for Couche-Tard, which has a market capitalization of around $47 billion. He is looking for a big contract and even had talks last year with French hypermarket operator Carrefour SA. The company is strong in the US and Canada, but EG would bring service stations to the UK, mainland Europe and Australia. Although EG now has a significant footprint in the United States, any competition concerns should be manageable.
A deal would be even better for the Issas and the TDR. After a series of acquisitions, EG, which generated sales of $21.5 billion in the year to Dec. 31, 2020, had net debt of $9 billion at the end of 2020. Add Another $1.8 billion in lease debt, and that’s over $10 billion. net borrowings.
Although earnings before interest, taxes, depreciation and amortization increased to $1.4 billion in 2020 from just over $1 billion in 2019, and the group has property, plant and equipment of approximately $5 billion , net debt was still 7.5 times EBITDA. A leverage of three times Ebitda is usually the point at which investors get nervous.
EG, which is chaired by British retail veteran Stuart Rose, has little immediate refinancing risk, but an exit would ease pressure from a higher interest rate environment. The backdrop for European consumption is also darkening amid the cost of living crisis in Britain and the war in Ukraine, which could shake confidence in mainland Europe and deter visitors from the region.
Meanwhile, high oil prices are swelling the coffers of gas station operators. This could be a good time to sell or enter into a combination that would allow the Issa brothers and TDR to extract some value from their stake.
Offloading EG would also provide more firepower to invest in Asda and defend market share if the food retail sector becomes more competitive. They financed the purchase of Asda, which is not part of the EG group, with debt of around 4 billion pounds ($5 billion).
Asda competes directly in the no-frills supermarket business. With more focused management and financial resources, it would be able to react more quickly if Britain’s biggest grocer, Tesco Plc, decided to launch a price war and lure customers in with cheaper deals. And it could fare better against German discounters Aldi and Lidl, to which shoppers are returning as food prices rise.
Asda is also considering a bid for Boots, which has been put up for sale by Walgreens Boots Alliance Inc. With a price tag of around £5billion, the high street pharmacy chain would be a big buy, likely requiring even more debt financing . . It would also require significant investment in its stores.
Selling EG would not prevent Asda from expanding into smaller convenience stores at EG gas stations, or putting more EG food franchises, such as Leon cafes or KFC and Starbucks franchises, in its existing grocery stores.
When the Issa brothers and TDR agreed to buy most of Asda in October 2020, it was unclear whether they would be the smartest men in retail or face a headache. financial and operational head.
A deal to realize the value of EG is not a certainty, but if it did, a positive outcome from Asda would become much more likely.
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This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.
Andrea Felsted is a Bloomberg Opinion columnist covering the consumer and retail sectors. She previously worked at the Financial Times.
More stories like this are available at bloomberg.com/opinion
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