Tesco’s apparent strategy to draw out bidders for its Korean Homeplus operation is already paying off.
While private equity players were apparently sent invitations to bid, the way the news of the as yet officially unconfirmed sale plan has spread, has drawn two public declarations of interest.
One is decidedly mischievous – from snack maker Orion, famous for its “Choco Pie” dessert sold in supermarkets all over Asia. Just where it would find £6 billion to buy Tesco Korea is unclear.
The other is from Korea’s Hyundai Department Store (no relation to the car company). Hyundai is worth about US$3 billion, so the likelihood of it pulling off a reverse takeover in its own right is slim. But it would make a worthy partner for a private equity investor, such as KKR, Carlyle, Affinity Equity Partners, CVC or MBK, all of whom have been formally invited to bid. Local knowledge, foreign capital and the appearance of local ownership to a finicky local consumer base would prove a solid foundation for growth and capital gain.
The end result of these two declarations creates the appearance that there is strong interest and demand in the Tesco Korea operation which, while profitable, faces challenges in maintaining market share.
At least one of the parties says it has received an information memorandum which tends to put beyond doubt Tesco Plc’s intentions.
Tesco CEO Dave Lewis has already proven at Unilever he was unafraid of tough decisions. And he is coping with many in his new role – his biggest yet to put Tesco Korea on the block.
With a value of circa £6 billion, it brings a whole new definition to the term ‘fire sale’. But if buyers are looking for a discount given Tesco’s UK operational woes, they’ll be disappointed.
The process has been managed by HSBC and an apparent series of leaks to news media, which, so far, are working well, offers a safe and risk-free means of testing the water. If the bids come in and the offers seem reasonable, Tesco has a good news story of a strong return, a significant reduction in its debt and a stronger financial base with which to continue its home market reforms and strengthen market share and profits. If no one seriously bites, Tesco can break its silence, deny a sale was ever on – and blame the media and market speculation for a misunderstanding.
Our prediction: Tesco will sell the Korean operation and it will get a good price for it, because one or two or more of those private equity players, working with a Korean partner with knowledge of the retail industry, will be able to extract value out of the business that has hitherto eluded Londoners pulling strings from afar.
- An earlier version of this commentary appeared in Inside Retail Premium edition on June 12. For more details about Inside Retail Premium click here.
