A rich store of promise in this tale of rags to riches

You read it here first. My colleague Oliver Gill revealed in these pages in February that the billionaire brothers Mohsin and Zuber Issa were exploring a bid for Asda. Seven months, a pandemic and £6.8bn later the pair, who started out in 2001 with a single petrol station in Bury, have their hands on one of Britain’s big four supermarkets.

The Issa brothers’ rags-to-riches story has proved irresistible over the last few days and rightly so. Their application of hard work and talent over two decades to reach the top of their industry and provide for their families and community, is a cheering tale for grim times. The brothers, hitherto studiously low-profile but as of this weekend owners of their own personal website, have deservedly collected plaudits from across business and politics.

Even the Chancellor, at this early stage one of a few obvious losers from the deal, couldn’t help himself. “Great to see returning to majority UK ownership for the first time in two decades today,” Rishi Sunak tweeted, perhaps detecting some echo of his own upward mobility in the Issa brothers, whose parents came to the UK from India to work in Bradford’s textile mills.

“The new owners have already committed to investing over £1bn in the next three years and increasing the proportion of UK-based suppliers,” Mr Sunak added.

Indeed they have, but as custodian of the public finances the Chancellor might have left the celebrations to others. A large chunk of that £1bn is likely to be paid for with much lower tax bills. Asda paid £95m in corporation tax last year under Walmart ownership. The takeover by the Issa brothers and their British private equity partner TDR, fuelled by £4bn of junk bonds and leveraged loans, is likely to leave the Exchequer out of pocket for some time.

As is typical in a leveraged buyout, the cost of the borrowing will be set against the supermarket’s profits, leaving less or perhaps nothing for the taxman to tax.

As a former investment bank analyst and hedge fund manager, Mr Sunak knows this better than most. There is nothing particularly unusual about any of it, beyond the fact it drew a round of applause from Number 11.

Whitehall sources claim Treasury communications officials had no warning that the Chancellor intended to give a takeover – one yet to face competition scrutiny – his seal of approval.

At Apollo, the US private equity firm that lost out to the Issa brothers on the same day it was dealt a heavy blow by Caesars Entertainment in the bidding for William Hill, the flag-waving probably drew hollow laughs too. It had signalled intentions to return Asda to the London stock market within a few years.

Regardless, the tax-efficient financial structure used by Mohsin and Zuber, combined with their clear talent for retail, gives Asda a better chance of regaining the initiative after years on the back foot. Better managed businesses, the private equity argument goes, end up contributing more. 

Part of their investment is sure to go into discounting to push back against the insurgent German discounters Aldi and Lidl. They have, anyway, had a tricky pandemic thanks to their failure to establish themselves in online shopping and stores that are neither especially convenient or large enough for the (socially distanced) big weekly shops that have made a comeback.

“This isn’t just a financial investment for us,” says Mohsin. “We feel that Asda’s customer-centric philosophy… is closely aligned to the values we have built in EG Group.”

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