Tesco’s Asian assets could be parcelled out by country, sources say
Tesco’s [LON:TSCO] Asian assets could easily be sold along geographic lines in the region, industry sources following the situation told this news service.
But suitors may have to wait until the grocer has more clarity on its overall group direction before it will embark on any sell-down, they said.
Tesco has a number of options in Asia because its businesses there are run separately, the sources said. This means it could hold onto operations in one or more countries, the sources said.
Some news reports have suggested Tesco might look to sell the combined operations in Thailand, Malaysia and South Korea in one package. However, industry sources played down the likelihood a bidder would buy the operations as a whole, saying interested suitors exist in each country.
If a deal for the whole package does emerge, it could be in the form of a sovereign wealth fund or private equity sponsor taking a stake in the operations, sources said. One pointed to Temasek’s purchase of a stake in Hong Kong's AS Watson as an example.
The Asian businesses accounted for 16% of group revenue and 21% of profit last year, according to Tesco’s 2014 annual report. The Asian operations include a 50:50 joint venture in India and a 20% ownership stake in a Chinese joint venture with China Resources Enterprise [HK:0291].
Tesco’s Homeplus discount operation in South Korea is the largest of the three being eyed by bankers. Large global private equity sponsors such as TPG, KKR and Carlyle will likely take a look at Homeplus, a second source said, adding that local groups like IMM Private Equity should also be interested.
Samsung’s involvement in setting up Homeplus in South Korea with Tesco could see the conglomerate as the first port of call, a third source said. Other potential buyers could include GS Retail [KRX:007070], Lotte Shopping [KRX:023530] and Hyundai Department Store [KRX:069960], sources said. The country’s largest player, Shinsegae [KRX:004170], may face antitrust issues should it acquire Homeplus, they said.
But its position as a large segment within the group might mean Tesco would hesitate before accepting any offer for the Korean business, the second source said. One report noted the operations might be valued at KRW 7trn (GBP 4bn). Homeplus, wholly-owned by Tesco, operates 106 hypermarkets and 492 express supermarkets in Korea. It has two subsidiaries- Homeplus Tesco and Homeplus Bakery.
In Malaysia, Tesco owns 70% of Tesco Stores (Malaysia). Local conglomerate Sime Darby [KLSE:SIME] owns the remaining 30%.
Dairy Farm International Holding [SGX:D01] might look at Tesco’s Malaysian operations, the third industry source said. Dairy Farm is a dominant player in Southeast Asia, and tends to review any supermarket asset that comes into play in the region.
Private equity sponsors should also show interest in Tesco’s Thai operations, sources said. Global industry leader Walmart might also be keen to look at the operations, the third source said. Central and Berli Jucker [BKK:BJC] could also be interested, a fourth source said.
The potential divestment drive is one of the most-watched situations by local bankers positioning for mandates, sources said, adding that any sale process might have to wait until the New Year. Tesco has a February year-end for its annual accounts, the fifth industry source noted.
Tesco might announce any advisory appointment for strategic options for the assets in late November, one of the industry sources speculated.
A person familiar with Credit Suisse in Asia said the bank has not been mandated to sell the Korean business Homeplus, contrary to a local media report. Morgan Stanley is a strong contender for a mandate, the second source said.
Tesco will not want to rush into selling the assets as it sorts through an accounting scandal in the UK and reviews how much capital it will require to shore up its balance sheet, sources said.
A decision as big as exiting Asia will not be taken likely, they said.
An initial announcement may be that the Group is conducting a strategic review of all its operations in the region, the second industry source said.
by Alex Tarrant, Patricia Heiberger, Soo Young Park, and