Daily Management Review

TESCO Reported to Have Finalized Bidder for its South Korean Business Sell Off


09/02/2015




TESCO Reported to Have Finalized Bidder for its South Korean Business Sell Off
In an attempt to cut its £22bn debts and fund a turnaround plan as it recovers from an accounting scandal, UK supermarket giant Tesco has chosen private equity firm MBK Partners as preferred bidder for its South Korean unit, Homeplus, reports Reuters.
 
Tesco has recently lost market share to discount chains such as Lidl and Aldi. There has been a fall of 20 percent in the value of shares of Tesco over the last one year compared with an 11 percent decline in the benchmark FTSE 100 Index.
 
Tesco noted the biggest annual loss in its 96-year history in April this year. It has also been reported that Tesco is looking to divest 100 percent shares of its Dunnhumby analytics business apart from selling off Homeplus in South Korea.
 
The South Korean wing of Tesco, Homeplus reported a net loss of 300.1 billion won in the year ended Feb. 28 even after it clocked profits a year earlier. The revenues of the South Korean business also shrank by 4 percent to reach 8.6 trillion won.
 
It has also been reported that Tesco is looking to generate 7 trillion won or £3.86 billion from the selloff.
 
Tesco had shortlisted Affinity Equity Partners, Carlyle Group, KKR and MBK Partners for the final round of bids in June this year after it reportedly rejected a £4bn bid for the Homeplus business in May.
 
It was around this time in June that the company lodged another drop in overall sales even as the company claimed to have slowed down the decline in sales.

The Korea and Thailand LFLs were down by just over 3% and 2% respectively in the same period even as the international like-for-like sales improved, the company had claimed. These were reported to have impacted the value of the Korean arm of the company.
 
This could be the largest private equity deal in South Korea, reports said, as the group led by MBK Partners Ltd. is reported to have also agreed to buy Tesco Plc’s debt related to its South Korean business.
 
There were reports that exclusive negotiating rights were clinched by the group that includes South Korea’s National Pension Service, for Tesco’s Homeplus business. Sources were quoted in the local media saying that top executives of both the companies - Tesco and MBK, to be present in Hong Kong on Wednesday to start final negotiations for the deal.
 
While the financial gains would be substantial for Tesco, MBK, North Asia’s biggest independent buyout firm would stand the chance to become the second largest discount store chain after E-Mart Co. in South Korea. At present the group operates more than 900 stores nation-wide generating annual revenues of over $7 billion. 
 
A successful completion of the deal would be the second company among global retailers to pull out of South Korea.
 
Aside from joining Wal-Mart Stores Inc. among global retailers pulling out of the country, selling the company’s biggest overseas business would provide U.K.-based Tesco with much-needed funds to pay off debt. Tesco shares have fallen 20 percent in the past year, compared with an 11 percent decline in the benchmark FTSE 100 Index.
 
(Source:www.wsj.com &  www.ibtimes.com) 






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