Tesco Sells Homeplus Chain in Korea for Almost $6 Billion

Cheshunt, Hertfordshire, England-headquartered Tesco Plc on September 7 announced an agreement to sell its Homeplus supermarket chain in South Korea to a group of investors led by MBK Partners Ltd., a Seoul-based private equity fund. The 7.2 trillion won (approximately £4.2 billion or $5.98 billion) transaction is reportedly the largest takeover deal in Korean history.

This sale realizes material value for shareholders and allows us to make significant progress on our strategic priority of protecting and strengthening our balance sheet,” said Dave Lewis, chief executive of Tesco.

Tesco-KoreaRanked as Korea’s second largest food retailer with approximately 140 hypermarkets, 375 supermarkets and 327 convenience stores, Homeplus rang up sales of 8.6 trillion won in 2014. Earnings before taxes, interest, depreciation and amortization amounted to 788 billion won.

Tesco operations in Korea, where over six million customers are served per week, are its largest outside of the UK. The stores are supplied by three distribution centers, with the largest processing more than 40 million boxes per year.

Noting that the profitable retail chain is healthy and has a bright future, Kim Kwang-il, chief of MBK Partners, stated: “We will invest 1 trillion won in Homeplus in the next two years to strengthen its market leader position and competitiveness.”

Partnering with the Samsung Group, Tesco entered the Korean market 16 years ago. It is not the first multinational grocery and general merchandise retailer to pull up stakes in that country. Walmart and Carrefour have also exited the scene, which is dominated by local chains.

Tesco’s pending departure likely has less to do with Korean market factors than with its overall financial condition. The Homeplus deal is its first significant disposal since reporting a record pre-tax loss of £6.4 billion for the year ending in February 2015, which is the greatest deficit ever reported by a UK retailer. The loss compared with a pre-tax profit of £2.26 billion a year earlier.

Tesco-Homeplus

As Tesco's debt now stands at £17 billion, including pension liabilities, one might expect to see more sales of assets in not too distant future. The chain, ranked third in the world and No. 1 in Britain by far with a 28.3% share of the market, operates 6,784 stores worldwide.

Completion of the Homeplus transaction is expected to take place in the fourth quarter of 2015, conditional on Tesco shareholder approval and regulatory approvals by the Korean government.