Tesco to sell its Asia business to CP Group for $10.6 billion

LONDON: Tesco Plc has entered into a conditional agreement with CP Group with respect to the sale of Tesco’s businesses in Thailand and Malaysia for an enterprise value of $10.6 billion.

Tesco to sell its Asia business to CP Group for $10.6 billion 1CP Group comprises of namely C.P. Retail Development Company Limited, Charoen Pokphand Holding Co., Ltd, CP All Public Limited Company and C.P. Merchandising Co., Ltd.

Tesco’s businesses in Thailand and Malaysia comprise of Tesco’s entire shareholding in Tesco Stores (Thailand) Limited (“Tesco Thailand”), Tesco Stores (Malaysia) Sdn Bhd (“Tesco Malaysia”) and any respective subsidiaries (together, the “Asia Business”).

The Disposal will simplify the Tesco Group, enabling a stronger focus on its retail businesses in the UK and Ireland and in Central Europe. The Disposal also realises material value for Tesco’s shareholders and allows the Tesco Group to further de-risk the business by reducing indebtedness through a significant pension contribution of £2.5 billion.

Over the last four years Tesco’s performance has significantly improved, in particular within the UK, its largest and most important market, but also across the wider Group. In October 2019, Tesco announced that it had met or exceeded the targets it had set against each of its six key strategic drivers, and that all elements of its turnaround plan had been executed successfully.

The Group’s balance sheet is now stronger, with total indebtedness reduced by £7.0 billion since the financial year end 2014/15. This has been driven by strong business performance, the release of £1.7 billion of value from the property portfolio, and selective asset disposals, including of the Korean business in 2015. In addition, the Group has completed the merger with Booker, combining the largest wholesale food business in the UK with the largest food retailer and unlocking significant shareholder value in the process. The improved business performance, combined with the reduction in indebtedness, means that Tesco now has an investment grade rating from its three covering rating agencies.

With a renewed focus on customers, colleagues and suppliers, the business is ideally positioned to deliver strong performance for all of its stakeholders.

Throughout the Group’s transformation, the Board and management team have been focused on ensuring the strategy and the portfolio management approach deliver attractive returns for shareholders. In 2017/18, on the back of stronger operational and financial performance, the ordinary dividend was reintroduced and subsequently it has increased by 92% last year. This year the target pay-out of 50% of earnings is expected to be reached.

It is from this strengthened position that the Board has decided to respond to the expressions of interest it received for the Tesco Thailand and Tesco Malaysia. Tesco’s Asian operations have been an important part of the Group for many years and constitute an exceptionally high-quality business, with market leading positions in two key markets of Thailand and Malaysia. Given the high value that could be received for Tesco Thailand and Tesco Malaysia, the Board concluded that it would be in shareholders’ best interests to conduct a strategic review to determine the best option for continued value creation. The conclusion of this strategic review led the Board subsequently to launch a competitive process to evaluate potential value creation through a disposal.

The Group received multiple offers for the Asia Business and the Board has unanimously concluded that the offer by CP Group to acquire the business for an enterprise value of £8.2 billion on a cash and debt free basis should be recommended to shareholders. The Board believes the Disposal will realise a significantly higher value than could be generated from Tesco’s continued ownership and investment. It will also enable the Group to return significant proceeds to shareholders, with c.£5.0 billion expected to be returned via a special dividend, and to further de-risk the business by reducing indebtedness through a significant pension contribution of £2.5 billion.

Dave Lewis, Chief Executive of Tesco, said: “Following inbound interest and a detailed strategic review of all options, we are announcing today the proposed sale of Tesco Thailand and Tesco Malaysia. This sale releases material value and allows us to further simplify and focus the business, as well as to return significant value to shareholders. I would like to thank all of our Tesco Thailand and Tesco Malaysia colleagues for their dedication, professionalism and service to our customers, which has resulted in the creation of such a strong business. I am confident that the agreement we have reached with CP Group presents an exciting opportunity for their continued success.”

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