Business of Law Firms:
K&E, Skadden and Addelshaws advise Asda and EG Group on sale of petrol business​

By Jake Rickman​

What do you need to know this week?

For this week’s Business of Law Firms series, we will take a break from our coverage of the Allen & Overy/Shearman & Sterling merger talks, and look instead at the recently announced buyout between Asda and EG Group.

This will give us a chance to look at the mechanics of a high-value acquisition from the perspective of a law firm — something we have been lacking as of late due to the dampened deal-making activity worldwide.

Deal overview

The two parties to the deal are:

(a) The UK supermarket chain Asda; and

(b) EG Group, which primarily owns UK and Irish petrol filling stations, motorway convenience centres, and a portfolio of franchised fast-food outlets like KFC and Starbucks, which typically occupy the group’s stations.

The key terms of the deal are:
  • EG Group will sell to Asda its petrol station business for £2.27b; and
  • in exchange, Asda will acquire 350 petrol stations and more than 1,000 food outlets.
As far as large acquisitions and takeovers go, this deal is remarkable because both Asda and EG Group are ultimately owned by private equity firm TDR Capital and the British billionaire brothers, Zuber and Mohsin Issa.

A simplified visualisation of the transaction might look like this:

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The Issa brothers founded EG Group in 2001 under the name 'Euro Garages'. In 2020, along with TDR Capital, the Issa brothers acquired Asda from US retail giant Walmart, in a deal that was primarily funded using a high percentage of debt relative to equity.

Asda’s acquisition of the petrol stations and associated assets will allow it to increase its earnings and pay down its existing debt. Both the Issa brothers and TDR Capital have agreed to provide £450m in equity to help fund the acquisition, with the rest coming from a mixture of term loan debt and proceeds from property sales.

You can read more about the terms of the acquisition from EG Group and Asda’s respective announcements.

Which law firms are acting on the deal?

As reported by The Lawyer, Skadden is advising EG Group, with a corporate partner leading the deal who previously advised the Issa brothers on the acquisition of their share of Asda from Walmart.

Addleshaw Goddard, Kirkland & Ellis, and Latham & Watkins are advising Asda.

Allen & Overy are advising the lenders.

Key points from law firm perspectives

As is the case for nearly all corporate transactions, the law firms acting for the buyer and seller will respectively be led by each firm’s corporate group. In addition to coordinating and project managing the other practice areas instructed to advise (see below), the corporate group will advise on the corporate structuring of the transaction. This includes creating new vehicles to transfer the assets and/or subsidiary companies from EG Group to Asda.

The corporate teams are also likely to help each group’s respective boards navigate the legal entanglements that may arise because both corporate groups have the same shareholders. While much of this may just involve boardroom formalities, the fact that Asda in particular has so much existing debt may require negotiating with existing lenders to approve the deal. This likely explains why Asda has instructed Latham & Watkins, given the firm’s role advising Asda on the debt components of its 2021 acquisition by TDR and the Issa brothers.

Speaking of debt, Allen & Overy is reported to be advising the lenders involved in the transaction, which given the size of Asda’s existing debt, likely means A&O will be substantially involved in the transaction.

By looking at the commercial drivers of the sale, we can determine which sorts of practice groups the firms will staff on this deal:
  • As is common with large “brick and mortar” retail groups like Asda, they often own a substantial portion of the land that the stores use. Moreover, it has been reported that approximately a third of the funding for the group has come from various property transactions. Therefore, we can conclude that property and real estate groups will be instrumental in navigating matters like leases, freehold sales and purchases, obtaining and releasing mortgage charges over the land, and directing the proceeds to the acquisition vehicle.
  • Likewise, Asda and EG Group also have various intellectual property assets that may need to be licensed or assigned. This will require the advice of an IP group.
Indeed, as The Lawyer reports, Addleshaw’s team is advising Asda on both the real estate and IP aspects of the deal.