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Tesco said to be considering sale of $5 billion Korean business

June 4, 2015 10:42 AM
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(Bloomberg)--Tesco Plc, the U.K.’s biggest supermarket chain, is considering a sale of its South Korean business that could fetch more than $5 billion, people with knowledge of the matter said.

The company is weighing options including a sale or initial public offering of Homeplus, one of the people said, asking not to be identified as the details aren’t public. Tesco is working with advisers including HSBC Holdings Plc on the process, the people said, adding that no final decision has been made on how to proceed.

Tesco, which in April reported the biggest annual loss in its 96-year history, has been weighing divestitures as it seeks to plug a debt hole of about 21.7 billion pounds ($33 billion). The Cheshunt, U.K.-based company said in January it hired Goldman Sachs Group Inc. to explore strategic options for its data-analytics unit Dunnhumby.

The grocer has invited groups including private-equity firms Bain Capital, CVC Capital Partners and Warburg Pincus to submit offers for Dunnhumby, two people with knowledge of the matter said. The business could fetch about 1 billion pounds, the people said.

Reuters reported Tesco’s plans to sell the South Korean business earlier Thursday in Hong Kong, citing unidentified people. Spokesmen for Bain, CVC, Goldman Sachs, HSBC, Tesco and Warburg Pincus declined to comment. Tesco shares were up 0.6 percent at 211.7 pence as of 2:25 p.m. in London.

Falling Sales

Tesco, No. 3 in the Internet Retailer 2014 Europe 500, entered the Korean market under former Chief Executive Officer Terry Leahy in 1999, with a 130 million-pound investment into a joint venture with Samsung Corp. The U.K. grocer initially held an 81 percent stake, before buying Samsung out of the venture in stages.

Because of a national restriction on Sunday opening hours for hypermarkets, Homeplus’s same-store sales have been in decline since 2011, dropping 4 percent last year. Even so, South Korea remains Tesco’s largest international market, accounting for about 9 percent of group sales.

Bruno Monteyne, a London-based analyst at Sanford C. Bernstein & Co., valued Tesco’s South Korea, Thailand and Malaysia units together at about 9 billion pounds in October. He put the price of Tesco Bank, also a potential sale candidate, at about 1.4 billion pounds.

In January Tesco announced plans to cut costs by as much as $380 million (250 million pounds) over the next year even as its e-commerce channel continues to grow at a healthy clip. The company sold its movie streaming and broadband subscription business and said it would close as many as 43 stores, consolidate some headquarters real estate and close or spin off some business units.

 

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