Tuesday 13 April 2010

The Race for Asda?

The fact that bookmaker Paddy Power is giving betting odds on possible successors to Andy Bond, may cause interested punters to miss the real race at Asda.

Whilst the possibility of growing share via a takeover of Argos and Homebase will possibly share some of the on-course enclosure limelight (Competition Commission permitting), the real issue has to be the fact that Asda has never been able to meet Walmart's scale ambitions in the UK because competition and planning legislation prevented both growth via acquisition and organically.

Perhaps better for Walmart to liquidate its UK interests and use the proceeds from a sale of Asda to fund development in India and China.

Having restructured its financial relationship with Asda by placing it within their UK Corinth Finance operation, it becomes technically easier to sell the company. At something between 5 x earnings and 50% of turnover i.e. between £5bn and £9bn it would appeal to either a Private Equity company or a Sovereign Wealth Fund (China or Middle East)

However, as a Private Equity owner would need a 5 year exit-strategy via flotation at ratios comparable with Tesco, this is a no-go because of the same growth restrictions being experienced by Walmart. Given that Asda is probably in reality 'a nice little earner', our money is on the probability of a Sovereign Wealth Fund being the ultimate winner….

That leaves it a toss-up between Chinese (side-bet Mandarin or Cantonese?) and Arabic evening lessons for Asda NAMs over the coming months.

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