TAIPEI: Tesco PLC agreed to sell its South Korean business to a group led by private-equity firm MBK Partners Ltd for ￡4 billion (US$6.08 billion), the UK grocer’s first major disposal as it seeks to ease the strain on its debt-laden balance sheet.
The purchase is to reduce debt by ￡4.23 billion, Tesco said in a statement yesterday. The group includes the Canada Pension Plan Investment Board, Public Sector Pension Investment Board and Temasek Holdings (Private) Ltd.
The sale represents a landmark for Tesco chief executive officer Dave Lewis in his efforts to revive the struggling retailer.
By exiting its largest international business, the Cheshunt, the UK-based company is taking a key step in plugging a debt pile of about ￡21.7 billion that has led to its credit ratings being cut to junk. Further divestments might follow, with Tesco also exploring the sale of its Dunnhumby data-analytics business.
“After a highly competitive process, we are announcing today the proposed sale of Homeplus,” Lewis said in the statement.
It is just over a year since he joined from Unilever.
The acquisition gives the MBK-led group a discount store chain that is second only to E-Mart Co in South Korea, with more than 900 outlets generating an annual revenue of more than US$7 billion. E-Mart, part of the family-run Shinsegae Group, estimates it had 29 percent of the market last year, followed by Homeplus 25 percent and Lotte Mart’s 16 percent.
Because of a national restriction on Sunday opening hours for hypermarkets, Homeplus same-store sales have been in decline since 2011, dropping 4 percent last year. The chain swung to a net loss of 300.1 billion won (US$2.49 billion) in the year ended Feb. 28 from a profit a year earlier, while revenue shrank to 8.6 trillion won amid weak household spending.
Tesco joins Wal-Mart Stores Inc and Carrefour SA among global retailers pulling out of the country. Shinsegae bought Wal-Mart’s local network in 2006, while outlets acquired by Tesco from E Land Group in 2008 were formerly owned by Carrefour.
By selling Homeplus, Tesco’s Lewis will be able to devote more attention to turning around the company’s fortunes in the UK.
While it remains the market leader in the UK, the company’s sales are falling amid a price war fueled by the expansion of German discounters Aldi and Lidl. In January, Lewis halted dividend payments and announced 43 store closures.
