Tesco has announced the sale of its South Korean business, Homeplus, in a £4.2bn deal, as CEO Dave Lewis sets about shoring up its balance sheet.
Today’s sale, to a group of investors led by MBK Partners and including Canada Pension Plan Investment Board, Public Sector Pension Investment Board and Temasek Holdings, was welcomed by analysts as more progress towards Tesco achieving core strategic priorities.
However, the sale marks another step in the scaling down of the global empire built by Sir Terry Leahy and Philip Clarke.
The sale is the first big disposal since Tesco reported a record pre-tax loss of £6.4bn in February.
“This sale realises material value for shareholders and allows us to make significant progress on our strategic priority of protecting and strengthening our balance sheet,” said Lewis.
“I would like to thank all of our Homeplus colleagues for their dedication, professionalism and service to our customers, which has resulted in the creation of a great business.
“I am confident that the agreement we have reached with MBK Partners presents an exciting opportunity for their continued success.”
Bruno Monteyne, senior analyst at Bernstein, described the sale as “sensible”, adding: “The sale of Korea means Dave Lewis has now addressed all three parts of his strategic plan.”
“This strengthening of the balance sheet will take some pressure of the sale of Dunnhumby and should allay the fears that Tesco will need to do a rights issue to secure its balance sheet,” he said. “Tesco now has £5bn of undrawn liquidity lines, £3.5bn additional cash and is not burning any cash in aggregate right now. ““For us, Homeplus is the most sensible asset to sell of the big Asian assets, i.e. as opposed to Thailand.”
The value of the deal was £300m more than reported in the FT at the weekend and further beyond many analysts expectations.
However, Monteyne said the sale was confirmation of the end of an era.
“If we didn’t know it already, the western retailers are abandoning their plans of world domination. Tesco can add Korea to China, Japan and USA as territories left in the last few years. (This is) further evidence that retail remains a local game, with locally-managed players generally being the better competitors.”
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