One of the recurring themes of the pandemic is the way it exposes the limits of power in the face of cold biological facts. Time and again we see politicians and business people make demands of the population that are roundly ignored on the basis of the available evidence.
They are instead forced to confront their own powerlessness in a process that resembles the stages of grief. Right now many of our leaders are somewhere between anger and bargaining, as they struggle to see a way through more months of coronavirus destruction. The depression stage is probably just a few weeks away and will be ended only by the launch of a vaccination programme, hopefully before Christmas.
Ministers are already backing away from the “back to work” campaign they attempted to launch last week in a bid to inject some life into city centres. The reason for the retreat is simple.
The latest live infection data shows the virus is on the march once again. Particularly among young people, coronavirus is spreading at rates last seen in June. It is making a comeback in London as the mercury creeps lower.
Of course, the disease is nowhere near as deadly as it once was thanks to the rapid progress made in treatment. However, those who claim the economy should return to normal immediately are on a hiding to nothing. “At least it won’t kill you” is not a persuasive argument.
The apparent reticence to return to the office is rational. So we must press on and embrace change, even if it is temporary. Pano Christou, the chief executive of Pret a Manger, arguably ground zero for virus disruption, is preparing for a permanently transformed economy with lower demand for his products. Six months into the crisis of our lifetime, step back and the old world feels further away than ever.
Asda auction may hold final twist
The fate of Asda should become clearer in the coming days. Bids for Britain’s number-three supermarket are due tomorrow, and the auction has been widely reported as a straight shoot-out between two US private equity firms, Lone Star and Apollo.
Each has brought in advice from a British retail veteran. Rob Templeman, the former boss of Debenhams, is working with Apollo, while Lone Star is getting an inside track from Paul Mason, who used to run Asda itself. This weekend, there are whispers that a third bidder for Walmart’s UK arm could yet materialise, however.
Back in February, we reported that EG Group, the petrol station empire controlled by Blackburn’s Issa brothers, was considering a bid for Asda. However, after raising billions of pounds on the debt markets to fuel rapid expansion, questions were raised over whether EG Group could secure sufficient additional funds to make a competitive bid. So it has been largely discounted as a potential buyer.
Friends of the Issas suggest they have been working on a potential bid via an alternative structure. Rather than using EG Group, the brothers are said to have considered using their personal wealth in collaboration with the private equity firm TDR, their long-standing investment partner, to skirt around any concerns over corporate debt.
It might also help avoid the sort of monopoly concerns that torpedoed Asda’s attempt to merge with Sainsbury’s in 2018, when petrol forecourt competition was one of the watchdog’s chief objections. While EG Group operates across 4,800 forecourts globally, in the UK it runs a more modest 341 petrol stations. A swoop on Asda would almost double the Issas’ footprint at home. They have built up EG Group as the world’s third-largest convenience store operator largely under the radar in under two decades.
It generated £20bn in turnover last year and served 17 million customers across petrol stations and stand-alone minimarts.
Lately, the brothers have been signalling their ambitions more openly. EG Group held talks about a £10bn float last year, and Mohsin and Zuber suffered a rare setback last month when they were outbid by Seven & I Holdings, the Japanese owner of 7-Eleven convenience stores, in a $20bn (£15bn) auction for US operator Marathon Petroleum.
Earlier this year, they were also attempting to take control of Australian fuel player Caltex’s retail operations for £2bn, though the pandemic appears to have put the process on hold.
Asda, with conventional supermarkets and online operations outside the Issa brothers’ forecourt comfort zone, would of course bring new challenges. It remains equally possible that no surprise bid will emerge from the North West, but even at this late stage, nobody inside the sale process is underestimating the Issa brothers.
Beware rush of autumn floats
The Asda sale is a sign bankers and bosses are keen to get deals done this autumn in what may prove to be a brief window of relatively benign market conditions. We should not be surprised even to see a mini-boom in stock market floats as private owners seize their opportunity to cash in.
Investors should have their wits about them. Many of the companies making their way to market will be doing so mostly because their owners are hurting in the pandemic and want some money back. For many, the Aim junior market offers a last resort. Look out especially for start-ups that have been kept on the road by lending from their shareholders. It’s often a sign they are not good enough businesses to merit further equity backing. Buyer beware.