UK supermarket chain Tesco has proposed a deal to sell its businesses in Thailand and Malaysia for US$10.6bn in a move it says will simplify the Tesco Group and enable a stronger focus on its retail businesses in the UK and Ireland and in Central Europe.
In a statement this morning (9 March), Tesco says it has agreed to sell its businesses in Thailand and Malaysia to a combination of CP Group entities, namely CP Retail Development Company Limited, Charoen Pokphand Holding Co, Ltd, CP All Public Limited Company and CP Merchandising Co, Ltd (CP Group).
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The sale, which has been unanimously agreed by the Tesco board, is conditional on Tesco shareholder approval and customary regulatory approvals in Thailand and Malaysia. It is expected during the second half of 2020 and will see Tesco return about GBP5bn (US$6.6bn) to shareholders via a special dividend.
Following completion, the supermarket chain says it will be a “significantly more focused business” with the leading market position in the UK and Ireland, with 3,769 stores from convenience formats through to larger stores, as well as its wholesale business, Booker. In addition, the group has an established presence in four Central European countries, with 895 stores comprising hypermarkets and convenience formats in the Czech Republic, Slovakia, Hungary, and Poland.
It adds the deal will further “de-risk” the Tesco business by reducing indebtedness through a GBP2.5bn pension contribution that, along with other measures, is expected to eliminate the current funding deficit and significantly reduce the prospect of having to make further pension deficit contributions in the future.
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“Following inbound interest and a detailed strategic review of all options, we are announcing today the proposed sale of Tesco Thailand and Tesco Malaysia. This sale releases material value and allows us to further simplify and focus the business, as well as to return significant value to shareholders,” says Tesco CEO Dave Lewis.
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By GlobalData“I am confident that the agreement we have reached with CP Group presents an exciting opportunity for their continued success.”
In a separate statement, Prasit Boondoungprasert, CEO of Charoen Pokphand Foods Public Company Limited, adds CPF’s investment in Tesco Asia is aimed at further strengthening its value chain in terms of distribution channels in Thailand and Malaysia and “enhancing the range of consumer options in this space.”
“CPF is confident that the investment presents exciting opportunities for enhancing Thai and Malaysian consumer experiences in an already highly competitive sector…This joint investment will boost sales of both Tesco and CPF. Given the fact that Tesco Asia has been enjoying the strong operating results consistently, coupled with its highly experienced management and operating teams capable of adapting to changing business and market environment, CPF firmly believe that this investment with Tesco Asia will further enhance the already impressive operating results.”
Tesco began operating in Thailand in 1998 through Ek-Chai, which operates under the name ‘Tesco Lotus’, and in Malaysia in 2002 under the name Tesco Malaysia as part of a joint venture with Sime Darby Berhad. In today’s statement, Tesco says as per 24 August 2019, Tesco Lotus operated 1,967 stores across Tesco Thailand, while Tesco Malaysia operated a network of 68 stores.
Tesco Lotus Thailand stores and Tesco Malaysia stores are both understood to stock the supermarket’s F+F clothing line.
According to an article published by Reuters, the deal would see CP Group take control of 1,965 stores Tesco operates in Thailand, much of which the report says Tesco bought from CP Group during the 1997-8 Asian financial crisis, and 74 outlets in Malaysia.
The news comes after Tesco confirmed it was weighing up plans for the Asia retail business in December of last year.
A month later, Thailand’s competition watchdog issued a probe into the potential sale of Tesco’s Asian assets, on fears the successful buyer may potentially control too much of the market. The Office of Trade and Competition said at the time it had set up a special investigation team to monitor developments in the divestment of the Tesco Lotus business.
Clive Black, analyst at Shore Capital, notes the firm “broadly welcomes” the disposal.
He adds: “We like the idea of a capital disciplined Tesco, focused upon driving out remaining self-improvement (we would not be surprised to see a process around a sale of Poland) and growth opportunities, noting the forthcoming possible acquisition by Booker of Best-Food Logistics, and so a progressive dividend and share buy-back.
“On balance though, we deem this to be good news and it supports our thesis of Tesco evolving as a cash compounding stock.”
