Morrisons Forms £2.5 Billion Gas Station Alliance With MFG

(Bloomberg) -- Wm Morrison Supermarkets Ltd. struck a deal to take a minority stake in Motor Fuel Group and sell it hundreds of gas stations and electric-vehicle charging sites in a £2.5 billion transaction ($3.2 billion).

The British grocer said the new strategic partnership between the two companies, both of which are owned by US private equity group Clayton Dubilier & Rice, would increase their buying scale. The deal will also help Morrisons reduce its debt pile following CD&R’s leveraged take-private of the supermarket.

Morrisons will take a stake of about 20% in Motor Fuel Group as part of the transaction, the companies said Tuesday. They will form supply agreements as part of a long-term partnership.

Gas station operators are preparing for a massive shift in demand as consumers switch to electric vehicles. The UK plans to phase out the sale of new diesel and petrol cars in 2035. The deal is similar to one struck last year when Asda, which is controlled by the Issa brothers, agreed to buy the UK and Ireland gas station arm of EG Group, another business they control, for an enterprise value of about £2.27 billion.

CD&R agreed to take Morrisons private in 2021 in a deal that took place just before the UK entered a period of historic food price inflation. Morrisons will employ proceeds from the deal to strengthen its finances after accumulating £6.6 billion in debt at the time of the acquisition.

Buying Scale

Morrisons has been one of the supermarkets hardest hit by soaring costs and has struggled to keep prices as low as some competitors. Joining forces with MFG will give it greater buying scale and greater investment in the convenience sector, where it has been traditionally less represented compared with rivals.

The financing initially remained stuck on banks’ balance sheets, as public debt markets were shook by rapidly rising interest rates and the breakout of the war in Ukraine, but over time lenders managed to syndicate a part of the debt.

As earnings and cash generation lagged, the leverage levels had become higher than expected for Fitch Ratings analysts, prompting them to downgrade Morrisons by one notch to B last November.

Morrison’s sterling-denominated junk bonds are quoted at 92.5 pence on the sterling, according to CBBT pricing compiled by Bloomberg News.

(Updates with details)

©2024 Bloomberg L.P.