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Thai conglomerates in race to buy Tesco Asia

Two Thai billionaires are reportedly preparing bids for the Asian operations of UK grocery giant Tesco. 

Citing “people with knowledge of the matter”, Bloomberg has reported that Charoen Pokphand Group, owned by Dhanin Chearavanont, and the Chirathivat family-controlled Central Group are among a group of potential investors in discussions with Tesco over a potential buyout. 

The UK company announced early last month that it was conducting a review of the future of its Asian business after receiving ‘inbound interest’.

Tesco operates 74 stores in Malaysia and about 2000 in Thailand under Tesco Lotus brand. The combined stores generated £286 million (US$375.8 million) operating profit in the year to last February.

Bloomberg reports that Tesco will invite formal bids for the business next month and suggests it may fetch as much as US$7 billion. 

The Malaysian and Thai Tesco operations are separate businesses, with Sime Darby holding a 30-per-cent stake in the former. 

The solicitation of bids may not necessarily lead to a sale of the business. 

Retail analytical consultancy GlobalData is among those suggesting a sale would not be in the best long-term interests of Tesco UK, which in recent years has sold or closed all its other off-shore businesses to focus on the UK market, and the Tesco Asia business. 

Hakan Demirci, consumer analyst at GlobalData, says the sale of the Tesco Asia business by its UK parent would prioritise shareholders over sound long-term economic strategy,

“Tesco’s Malaysian and Thai sectors have been constant sources of sustained success, with profit margins the highest at 6 per cent compared to the UK business’s margins of 3 per cent. 

“Selling its Asian business would be welcomed by Tesco’s shareholders, who would be granted higher returns on their investments if it were to go through. However, these markets were relatively developed and consolidated, with little room for growth in the retail sector.

He said the Malaysian food and grocery market is set to grow from now through 2022 with a compound annual growth rate (CAGR) of 9.9 per cent. Likewise, the Thai food and grocery market will grow at a smaller, yet still significant CAGR of 4.5 per cent over the same period – representing a significant opportunity for Tesco to expand its business.

“If these markets were to be sold, Tesco would be left with operations in the UK, Ireland and Central Europe. This would leave the group vulnerable as it loses its benefit of regional diversification, resulting in a less dynamic and flexible company.”

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