Tesco Considers Sale of Asian Supermarkets in Pivot to U.K.
Tesco Considers Sale of Thai, Malaysia Supermarket Businesses
(Bloomberg) --
Britain’s biggest supermarket chain, Tesco Plc, is considering the sale of its operations in Thailand and Malaysia as it refocuses on the domestic business amid mounting challenges in the U.K.
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 as much as 5.9% on Monday in London and have climbed almost 30% 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 restructuring its core U.K. business that has cut thousands of jobs and shifted to new formats including checkout-free stores. It would also allow the British retailer to exit a competitive Asian region that has 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 shops. The Thai business alone could be valued at almost $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.
Tesco has streamlined its domestic operations under outgoing Chief Executive Officer Dave Lewis, including pulling 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.
Possible Suitors
The U.K. company is likely to see acquisition interest from regional conglomerates who’ve had success combining local operations know-how with the cache of international brands. In Malaysia, Japanese retail giant Aeon Co. acquired Carrefour’s operations in 2012 for $276 million. A spokeswoman for Aeon declined to comment on Tesco’s business.
Thai conglomerates like Central Group and the Singha Corp. are potential buyers who might be drawn to Tesco’s large retail network in the country, Lapiz said. Neither company responded to requests for comment.
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 with no transaction taking place.
Sime Darby, a Malaysian conglomerate, holds a 30% stake in Tesco Malaysia. When asked about Tesco’s possible exit from the country, Sime Darby said in a statement Monday that it’s continually assessing strategic options to divest non-core assets and focus on industrial and motor businesses.
If a deal were to happen, Sime Darby could receive a windfall of about 1.3 billion ringgit ($282 million), based on Tesco Malaysia’s enterprise value of $2 billion, according to Ahmad Maghfur Usman, an analyst with Nomura Global Markets Research.
--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 suttinee1@bloomberg.net
To contact the editors responsible for this story: Rachel Chang at wchang98@bloomberg.net, Thomas Mulier
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