Tesco shares soar as investors salivate over potential sale of Asian division
Analysts believe the sale of the Thailand and Malaysia division could bank Tesco up to £7.2bn.
Tesco’s Asian business, which the supermarket confirmed is being eyed up by a potential suitor, could be worth as much as £7.2 billion, according to the City.
The price tag prediction comes after the supermarket reiterated that it could leave the continent it has operated in for more than 20 years and where it has 2,041 stores with 60,000 workers.
The grocer said it has been approached by a potential buyer and “commenced a review of the strategic options for its businesses in Thailand and Malaysia, including an evaluation of a possible sale of these businesses”.
One can see how a number of major trade, family office and private equity investors in Asia could be interested in this trophy asset within the Tesco Group, albeit quite what local regulators think needs to be considered Clive Black, Shore Capital
The City reacted positively to the news, with analysts welcoming the approach, pointing out that it should generate a significant price tag if a deal is agreed.
Shares jumped more than 4% in early trading – up 9.7p to 242p.
Bruno Monteyne, at Bernstein – himself a former Tesco executive – said: “A valuation of £6.5 billion to £7.2 billion seems a fair valuation for an unsolicited proposal.”
It remained unclear who the potential suitor is, although Clive Black, retail analyst at Shore Capital, suggested: “One can see how a number of major trade, family office and private equity investors in Asia could be interested in this trophy asset within the Tesco Group, albeit quite what local regulators think needs to be considered.”
Operating profits in the division hit £286 million last year from 1,967 stores in Thailand under the Tesco Lotus brand, and 74 in Malaysia.
But Thailand has proved particularly challenging for the company in recent times, with bosses blaming “the issuance of government welfare cards” for hitting sales there.
A significant overhaul of the business took place earlier this year, under Tesco lifer and former HR chief Alison Horner, with a shift towards smaller convenience stores.
It came after the Asia division saw a 6.2% drop in like-for-like sales, although the new stores helped stem the flow in the second half of the year.
Part of the changes saw Tesco re-purpose 26 stores, mainly in Thailand, and close a further 56 stores.
Total capital expenditure for the Asia division was £235 million last year, and £239 million the year before, and in June Tesco boss Dave Lewis unveiled plans to open a further 750 convenience stores in Thailand.
The Thai business was one of the few major successes launched by former chief executive Sir Terry Leahy which continues to thrive to this day.
Sir Terry opened in Thailand in 1998 as Tesco Lotus, launching operations in South Korea, Taiwan, Malaysia, Japan and China.
But the expansions took the focus off the UK and slowly Tesco retreated, with Mr Lewis closing the South Korea business shortly after joining the supermarket in 2014.
If the sale is completed, it would leave Tesco’s only non-UK operations in central Europe and Ireland.