Tesco sells South Korean unit to MBK-led group for $8.6 bln

Women push their shopping carts at a Homeplus market in Seoul, South Korea, on Aug 24, 2015.
Women push their shopping carts at a Homeplus market in Seoul, South Korea, on Aug 24, 2015. PHOTO: REUTERS

LONDON (REUTERS, BLOOMBERG) - Britain's Tesco has agreed to sell its South Korean unit to a group led by private equity firm MBK Partners for 4 billion pounds (S$8.65 billion), it said on Monday, in its first major disposal since it hit financial difficulties.

Tesco said in a statement the sale of Homeplus, its biggest overseas unit, to a group of investors led by MBK and including the Canada Pension Plan Investment Board, Public Sector Pension Investment Board and Temasek Holdings would help to pay down debt.

The world's third largest retailer has been looking to make disposals after a string of profit warnings sparked by problems in its home market led to its credit status being cut to junk.

The purchase will reduce debt by 4.23 billion pounds, Tesco said in a statement Monday. 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 England-based company is taking a key step in plugging a debt pile of about 21.7 billion pounds that has led to its credit ratings being cut to junk. Further divestments may 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," Mr Lewis said in the statement. It's just over a year since he joined from Unilever.

The acquisition gives the MBK-led group a discount store chain that's second only to E-Mart Co. in Korea, with more than 900 outlets generating annual revenue of more than US$7 billion (S$9.9 billion).

E-Mart, part of the family-run Shinsegae Group, estimates it had 29 per cent of the market last year, followed by Homeplus's 25 percent and Lotte Mart's 16 per cent.

Because of a national restriction on Sunday opening hours for hypermarkets, Homeplus's same-store sales have been in decline since 2011, dropping 4 per cent last year. The chain swung to a net loss of 300.1 billion (S$35 billion) won 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 CEO Mr Lewis will be able to devote more attention to turning around the company's fortunes at home. While it remains the market leader in the U.K., the company's sales are falling amid a price war fueled by the expansion of German discounters Aldi and Lidl. In January, Mr Lewis halted dividend payments and announced 43 store closures.

Tesco entered the Korean market in 1999 under then-CEO Terry Leahy with a 130 million-pound investment in a joint venture with Samsung Group. The U.K. grocer initially held an 81 percent stake, before buying Samsung out of the venture in stages.