Tesco Considers Sale of Asian Supermarkets in Pivot to U.K.

9 Dec by Vitaliy Dadalyan

Tesco Considers Sale of Asian Supermarkets in Pivot to U.K.

Share the love y'all!

Tesco Considers Sale of Asian Supermarkets in Pivot to U.K.(Bloomberg) — Want the lowdown on European markets? In your inbox before the open, every day. Sign up here.Britain’s biggest supermarket chain, Tesco Plc, is considering the sale of its operations in Thailand and Malaysia as it refocuses on its domestic business amid mounting challenges in the core U.K. market.The company is carrying out a strategic review of the businesses after receiving what it called inbound interest, according to a statement. The shares rose 4.6% early Monday in London, and they’re up 28% this year. A sale could value the operations at 6.5 billion to 7.2 billion pounds ($8.6 billion to $9.5 billion), Sanford C. Bernstein analyst Bruno Monteyne said in a note. The Thai operation is a “great quality business,” and is undervalued as part of a larger group, Monteyne said.“That in itself provides ample justification to consider a disposal, especially if there is unsolicited interest,” he said.Tesco spokesman Simon Rew declined to comment on the valuation.While a sale would mean losing the fastest-growing part of its operations, Tesco would get an infusion of cash to continue the restructuring of its core U.K. operations that has seen thousands of job cuts and a shift to new formats including checkout-free stores. It would also allow the British retailer to exit a competitive Asian region that has already stymied European peers like Carrefour SA.Tesco Thailand is the biggest hypermarket chain in the country and operates 1,967 stores in total, while the Malaysian business has 74 stores. The Thai business alone could be valued at nearly $7 billion because it includes real estate assets, Dow Jones reported. In the first half of fiscal-year 2020, the retailer’s entire Asia business produced 2.6 billion pounds of revenue, accounting for about 8% of total sales.While still dominant in Thailand, Tesco is grappling with challenges like chronically weak consumption trends, an increasingly stringent regulatory environment, and “formidable, well-connected competition,” said Maria Lapiz, Bangkok-based head of research at Maybank Kim Eng Securities (Thailand) Pcl.“There is no longer-term growth here, and Tesco may want to rationalize its business and raise funding in the process as well,” she said.Job CutsUnder outgoing Chief Executive Officer Dave Lewis, Tesco streamlined its domestic operations with mass job cuts, and pulled back from some international markets. The company is also considering a sale of its struggling Polish operations, people familiar with the situation said in September.Ken Murphy, who is set to succeed Lewis, will have to wrestle with a growing U.K. retail crisis exacerbated by Brexit, the shift to online shopping and competition from discounters Lidl and Aldi.Tesco is likely to see acquisition interest from regional conglomerates who’ve been successful in combining local operation know-how with the cache of international brands. In Malaysia, Japanese retail giant Aeon Co. acquired Carrefour’s operations in 2012 for $276 million.Thai conglomerates like Central Group and the Singha Corp. are potential buyers who’ll be drawn to Tesco’s large retail network in the country, said Lapiz.The review is at an early stage and no decisions concerning the Thailand or Malaysia operations have been made, Tesco said, adding that the process could end without a transaction being concluded.(Updates with shares in second pargraph)\–With assistance from Yantoultra Ngui, Nour Al Ali, Bill Lehane, Andrew Davis, James Amott and Deirdre Hipwell.To contact the reporter on this story: Suttinee Yuvejwattana in Bangkok at [email protected] contact the editors responsible for this story: Rachel Chang at [email protected], Thomas MulierFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.