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Walmart Moves Ahead With Sale of Asda Supermarket Chain, Could Get $8.6 Billion

By Rhian Hunt - Mar 16, 2020 at 3:12PM

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The deal could be profitable, but the outcome of bidding remains uncertain.

Walmart (WMT 1.85%) began the second round of bidding today for Asda, a chain of UK supermarkets owned by the U.S.-based retail titan, according to company sources. Three private equity firms are currently in the running to make bids on the brand. These include TDR Capital, Lone Star Funds, and Apollo Global Management, Inc., all three of which participated in the first round of bidding when Adsa first went on the block.

Asda controls approximately 15% of the British grocery market. Yet investors are also excited about the fact that Asda owns around 70% of the real estate its stores stand on as "freehold," rather than leasing it or occupying it through other arrangements. Moreover, much of this real estate is in extremely choice retail locations. According to Richard Curry, a partner at UK property consultancy Rapleys, Asda's vast parking lots also provide a purchaser with the potential opportunity to lease space to fast food restaurant, gyms, department stores, and similar businesses.

A man holds a gavel and a digitized house.

Image source: Getty Images.

While some UK grocery companies saw sales rise during the first two months of the year, Asda's dropped slightly, possibly impacting its value from the viewpoint of potential purchasers. Like many other British retailers, Asda recently imposed rationing on hand sanitizer, toilet paper, and other hygiene and cleaning products in an effort to prevent hoarding, which might limit any temporary sales boost from COVID-19.

According to anonymous sources obtained by Bloomberg, Asda could be worth as much as 7 billion pounds ($8.6 million) to Walmart. These sources also indicated that Walmart will only sell Asda if it deems the bids high enough, raising the possibility that none of the three private equity firms will end up sealing the deal.

 

Rhian Hunt has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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