Tesco Sells Homeplus to Focus on UK Growth

07 Sep 2015

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07 Sept 2015 --- UK retail giant Tesco has announced that it is to sell its retail businesses Homeplus and Homeplus Tesco Ltd in the Republic of Korea. The deal, with entities established by a group of investors led by MBK Partners and including Canada Pension Plan Investment Board, Public Sector Pension Investment Board and Temasek Holdings (Private) Limited is thought to be worth€5.4bn.

Dave Lewis, Chief Executive of Tesco, said: “After a highly competitive process, we are announcing today the proposed sale of Homeplus, our business in the Republic of Korea. This sale realises material value for shareholders and allows us to make significant progress on our strategic priority of protecting and strengthening our balance sheet.”

“I would like to thank all of our Homeplus colleagues for their dedication, professionalism and service to our customers, which has resulted in the creation of a great business. I am confident that the agreement we have reached with MBK Partners presents an exciting opportunity for their continued success.”

On 23 October 2014, Tesco announced that its immediate strategic priorities were: To regain competitiveness in its UK business; To protect and strengthen its balance sheet; To rebuild trust and transparency in the business and brand consistent with these priorities. Senior management initiated a strategic review of all aspects of the Tesco group with the aim of improving its competitive position, reducing its total level of indebtedness and delivering sustainable returns.

During this review, a considerable level of unsolicited interest was received from several parties in relation to the Homeplus business. The Board subsequently decided to launch a competitive sale process for the Homeplus Group. The Directors believe that the disposal delivers material value and certainty for shareholders and will deliver the following important benefits to shareholders.

Following the Disposal, Tesco retains strong businesses in South East Asia with good prospects for long term growth, together with its businesses in the UK, Republic of Ireland and Europe.

The Homeplus Group started in 1999 as a hypermarket only business and today operates as a multichannel retailer. The Homeplus Group operates online and through 1,075 outlets, of which 140 are hypermarkets, 609 are supermarkets and 326 are convenience stores (the supermarkets and convenience stores being a mixture of directly owned and franchised). It also operates 139 shopping malls adjacent to its hypermarkets, with over 6,500 tenant leases. It is a leading grocery retailer in the Korean market and one of the most recognised retail brands in the Republic of Korea.

Homeplus generated approximately KRW9.3 trillion (€7.3billion) in sales in the financial year ended 28 February 2015, serves over six million shoppers each week and employs over 26,000 people.

The Homeplus Group has demonstrated robust performance in a challenging regulatory environment over the past few years. The introduction of the Distribution Industry Development Act (DIDA) has had a material adverse impact on store opening hours and trading days at Homeplus with an associated impact on revenue and profitability. The result has been a reduction in like-for-like sales over the past three years, with overall revenue being stabilised through growth in store numbers and online. For the 53 weeks ended 28 February 2015, there was a significant reduction in profitability of the Homeplus Group. This was principally driven by €451 million of one-off charges included within operating profit, with the most significant items being a €293 million property impairment charge and €95 million for the write down of inventories and €62 million of other items.