UK retailer Tesco has reportedly engaged HSBC to manage the sale of its South Korea retail operations.
Tesco Korea is the hypermarket giant’s largest division outside its UK home market and analysts estimate the business could fetch between US$5 and $7 billion, enough to make a substantial hole in its debt and restructuring expenses.
Analysts in the UK suggest private equity companies would be the most likely potential bidders for the operation, especially investment arms of Korean banks.
Tesco, the world’s fourth largest retailer by sales, may agree to retain a stake in the business
post-sale, and/or license its brand, which has strong recognition in the market.
Tesco says on its website it has more than 400 stores in Korea, along with 500 franchised stores, and serves more than 6 million customers every week.
“We have a profitable online business and 22 of our award-winning virtual stores in South Korean subways and bus stops help time-pressed customers shop on-the-go using their smartphones.”
The stores are fed by three distribution centres, the largest the Hamahn Fresh Distribution Centre, which is also the biggest fresh distribution centre in Asia, processing more than 40 million boxes per year.
“We have increased the availability of prepared fruit & veg and ready-meals in our stores. “We’ve also responded to economic pressures by offering a range of Homeplus own-brand products in three categories, from ‘Good Zone’ basics at the lowest price point to ‘Best Zone’ premium products,” the company says.
Besides selling goods in Korea, Tesco says it exports £36 million of largely non-food products from Korea to the rest of the Tesco Group.
Tesco has been tipped to divest some of its Asian operations since an accounting scandal and falling market share in the UK decimated its share value and new CEO Dave Lewis was appointed to try to turn around the struggling organisation.
Tesco also has operations in Thailand and Malaysia
The company posted a pretax loss of £6.38 billion (US$9.52 billion) for the year to February 28, largely due to writedowns. Its day to day operations remain profitable.
Tesco’s foreign retail competition have already exited Korea, finding the market, dominated by local players, tough to crack. Walmart sold 16 stores there to Shinsegae in 2006 and France’s Carrefour sold out to E.Land Group the same year.
