British supermarket Asda said it would buy the bulk of petrol station operator EG Group's UK and Ireland business to speed up its move into the convenience sector.

The deal will create a company with combined revenue of nearly £30 billion.

Asda, Britain's third-largest grocer, and EG are both owned by brothers Zuber and Mohsin Issa and private equity group TDR Capital.

The unit of around 350 petrol stations and over 1,000 food-to-go locations will be valued at £2.27 billion.

The deal will help Asda in its drive to overtake Sainsbury's and become Britain's second biggest supermarket as it rolls out its convenience format Asda Express across the EG petrol estate. EG will pay down debt.

"This transaction is all about driving growth by bringing Asda's heritage in value to even more communities and accelerating the growth of its convenience retail business," said Asda chairman Stuart Rose.

He said Asda would remain a "price leader" in fuel sales.

The deal will be funded by £450m of equity from Asda's shareholders, who include its former owner, US retail giant Walmart, £770m of term loan debt and around £1.1 billion from property-related transactions, including sale and leaseback of some of its stores.

Rose told reporters that raising debt had not been an issue, and existing bondholders were happy with the deal's structure, which did not materially increase Asda's leverage ratio of about 4.3 times after finance leases and ground rent liabilities.

"The capital structure is absolutely appropriate," he said.

EG said it would use the proceeds from the sale to help pay down debt, following a separate deal involving its US operations earlier in the year.

EG's net debt was close to $9.7 billion at the end of last year, more than seven times its adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) for 2022. It said the group's net leverage would fall to below 5 times.

The Issa brothers bought Asda in 2021 and have already converted 166 EG sites to the "Asda on the Move" format.

Mohsin Issa said the converted sites had seen a large increase in sales - touching three figures in percentage sales increases at some locations.

Tesco leads the UK grocery market with a 27.1% share, according to Kantar data, ahead of Sainsbury's 14.8% and Asda's 13.9%.

The sector is juggling a surge in food prices with the need to pay higher wages, while facing fierce pricing competition from German discount groups Aldi and Lidl.

Asda, which, like rivals is competitive on the price of petrol at its large stores, said it would spend more than £150m in the next three years on integrating EG.

The grocer reported like-for-like sales growth of 7.8% in the three months through March compared with the previous year, while total revenues excluding fuel increased by 8% to £5 billion.

The EG Group entered into the Irish market in 2020 after the purchase of 145 KFC locations from the Herbert Group to become one of the largest European KFC franchise operators.