The Issa brothers couldn’t make Asda work. Can their ‘cut-throat’ friends do any better?

TDR's founder, Manjit Dale, was depicted as a cartoonish Victorian gent during a recent GMB union protest - GMB

Customers arriving at Asda’s Bournemouth superstore this month would have been forgiven for immediately turning around and going home.

On an overcast Thursday morning in June, this unremarkable corner of the Dorset coast had become the staging post for what threatens to be a fierce backlash.

The GMB trade union had persuaded hundreds of disenchanted Asda employees to converge in front of the supermarket’s premises and protest at what they claim is unfair treatment at the hands of its owners – the private equity firm TDR Capital.

“We need a new deal for Asda workers,” proclaimed one large banner.

Until recently, the union’s ire has largely been targeted at the billionaire Issa brothers who led a £6.8bn takeover of Asda three years ago, with TDR’s backing and a mountain of expensive debt.

Since that deal, Britain’s third-largest supermarket has gone backwards at an alarming rate. Profits have slumped, debt costs rocketed, and its market share has fallen from 14.8pc to 12.8pc, fuelling discontent among Asda’s 140,000 workers.

However, the decision by Zuber Issa to sell his 22.5pc stake to TDR, after relations with his older sibling Mohsin became increasingly strained, has cast Asda’s recently anointed majority shareholder as the GMB’s new pantomime villain.

For a firm that has long sought to remain under the radar, the scrutiny that has come from its involvement with Asda is unfamiliar and unwelcome territory.

A grilling for managing partner Gary Lindsay, who led its investment in the supermarket chain, chief operating officer Blair Thompson and deputy general counsel Emma Gilks by senior MPs at the start of the year left the trio squirming.

Meanwhile, a colleague of Lindsay was heard exclaiming “freedom!” as the executives left Westminster. “Yes, that’s exactly right,” Lindsay reportedly replied.

Yet that experience may be nothing compared to what the GMB has in store for TDR.

TDR boss Gary Lindsay has faced MPs' question over his part in Asda's ballooning debt pile

Union officials say they are planning a series of further demonstrations in the coming months. The presence of a large cardboard cutout of TDR’s founder, Manjit Dale, mocked up as a cartoonish Victorian gent among the crowd is a clear sign of where the GMB plans to direct its anger.

Tensions have been steadily rising.

This month, Hayley Tatum, Asda’s chief people and corporate affairs officer, wrote to all employees to criticise the GMB, highlighting how union chiefs have “continued to engage in some very personal and public attacks on our owners and our business”.

While this has done little to improve relations, the big question that TDR now faces is whether it can succeed where the Issas have failed and halt Asda’s alarming slide.

To achieve this, it will soon have to entrust the running of the business to someone other than Mohsin Issa, who is planning to step down by the end of the year.

A package of £10m has been touted to identify a new chief executive, although it is understood potential candidates have so far been deterred by Mohsin’s continued presence as co-owner.

It emerged last night that Gary Mills, a former Tesco and Morrisons executive, has been drafted in as interim retail director of the business.

An examination of TDR’s track record provides mixed answers as to whether it will be able to effectively overhaul Asda.

The firm was founded a little over 20 years ago by former bankers Dale and Stephen Robertson, as Tudor Dale Robertson. American hedge fund tycoon Paul Tudor Jones, who provided a large chunk of its first €550m (£466m) fund, completes the trio of surnames. It has since gone on to raise a further four funds – its last totalling €4bn.

Industry consultants wax lyrical about an unblemished track record of handsome returns.

In 2022, as the teachers’ retirement fund of the state of Pennsylvania contemplated investing in TDR’s fifth fund, advisers encouraged it to put $100m (£79m) into a firm whose “prudent approach to risk mitigation has resulted in no realised losses since inception”.

TDR isn’t afraid to blow its own trumpet either. Lindsay told MPs in January that there are “distinct aspects of TDR’s model” that make it stand out from competitors.

“The majority of the capital that we invest alongside our investors is our own,” he said.

“That means not only that we have significant skin in the game, but that we care deeply and passionately about each and every business that we own. It also means ... we tend to be extremely cautious and disciplined when it comes to risk.”

TDR are set to play a more active role in Asda's management as brothers Zuber (left) and Mohsin Issa step back from the business - Jon Super

Yet the portrayal of TDR as a prudent outfit is not one that some in the City recognise. Leading figures describe a hard-charging culture. Investments often seem to be driven by “ego” and “adrenaline” rather than rational analysis, one adviser who worked on several of their deals said.

“There was a period when they were going after literally every asset out there and they were out-bidding everybody else. So I’m not sure how strategic they are. I think they get into a deal frenzy,” he said.

Another, who has worked closely with TDR, says it is a firm where the dealmakers are granted great autonomy. “The individual personalities within the firm are wildly different,” they said.

“It is a kingdom of individuals and seriously secretive. They are each trusted with their own interests and allowed to run with it.”

Problems with several of its investments suggest Lindsay overestimates the extent of TDR’s abilities.

City sources point to difficulties at Algeco, which required a massive $650m cash injection in 2018 – $265m of which came from TDR, and $385m was raised from outside investors, according to reports.

TDR has also been forced to repeatedly prop up Hurtigruten, a Norwegian cruise ship operator it has owned since 2014. In 2022, investors pumped another €170m into the business, in 2023 they provided a further €80m of funding, and earlier this year it received €185m of new money as part of a rescue refinancing deal.

“They are going to have to chop a lot of wood to make some of these deals work,” a restructuring expert said.

TDR’s ownership of gym chain David Lloyd provides a window into the sort of financial engineering tactics that TDR regularly deploys in order to boost returns. Of the £730m it paid for the company in 2013, just £190m of that was TDR’s own money – the remaining £530m was financed through borrowings.

In 2021, the firm provided just £100m of a one-off £350m cash injection that it was forced to make. The remainder was in the form of a specialist loan and “payment-in-kind” notes that accrue interest at sky-high compound rates.

TDR has managed to pocket more than £550m in dividends and other repayments – almost three times its initial investment – by loading more debt onto David Lloyd. It is now lumbered with close to £1.1bn of borrowings.

However, more pressing issues have emerged at Stonegate, the sprawling pub chain acquired by TDR in 2010.

In April, the company warned it was struggling to refinance £2.2bn of loans, from a debt pile that has ballooned to more than £3bn. This has fuelled fears that Asda may soon befall a similar fate.

“Stonegate may be a dire warning of what’s to come for Asda,” GMB national officer Nadine Houghton said.

Stonegate owns more than 4,500 pubs including the Slug and Lettuce and Yates chains.

Slug & Lettuce owner Stonegate has struggled to refinance its loans, fuelling fears of a similar fate befalling Asda - Mike Egerton/PA Wire

These days, however, it is less of a pub operator and more of a “hedge fund hotel”, quipped one investment banker – a reference to the number of vulture funds that have snapped up its loans on the cheap hoping to profit from any financial restructuring.

TDR’s reputation for hard-nosed tactics is already spreading fast through the shop floor at Asda, which has seen millions of hours cut over the past 12 months and staff outsourced to India.

Much of this is the result of attempts to reduce costs, with the business hammered by a £441m debt finance bill last year, borne from £4.2bn in borrowings.

“People are worried,” said one employee. “They feel that TDR is going to break it up by getting rid of any stores that aren’t doing well.

“People are concerned that it’s going to become far more cut-throat.”

Senior industry figures also question whether TDR is capable of sticking out the graft required in retail, which is more dominated by regional customer focus groups than testosterone-fuelled M&A.

As one supermarket executive said: “Getting money to make a big acquisition is a big tick. But getting money to invest in the boring miles of keeping prices low – that’s different. Their excitement doesn’t come from investing in the daily grind, their excitement comes from deals.

“The hard miles of running a retail business day in, day out – that is the thing that has utterly been missing at Asda during the Issas and TDR’s reign.

“You go into an Asda now and it feels pretty soulless. It’s hard to see why – other than location and convenience – you would shop at Asda. And TDR won’t really see that.”

A TDR spokesman said: “Over the last 22 years TDR has invested approaching €15bn in 27 companies across the UK and continental Europe.

“As the largest collective investor in the firm’s funds, TDR is proud of its long-term approach in supporting businesses, management teams and employees to deliver on a shared vision for growth.”

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