A group led by MBK Partners Ltd is nearing an agreement to buy Tesco PLC’s South Korea business for about US$6 billion, including debt, in what could be the nation’s biggest private-equity deal, people with knowledge of the matter said.
The group, which includes South Korea’s National Pension Service, yesterday clinched exclusive negotiating rights to purchase Tesco’s Homeplus business, according to one of the people.
The MBK consortium has secured financing for the purchase, the person said, asking not to be identified as the information is private.
MBK, North Asia’s biggest independent buyout firm, beat a rival consortium led by KKR & Co, the people said. Executives from Tesco and MBK were in Hong Kong yesterday to finalize details of an agreement, one person said.
Completing the deal would give the MBK-led group a discount store chain that is second only to E-Mart Co in South Korea, with more than 900 stores generating annual revenue of more than US$7 billion.
The South Korean business is Tesco’s “crown jewel” in Asia with a valuation of £4 billion ($6.12 billion), trumping the £1.6 billion Dunnhumby is valued at, according to Credit Suisse Group AG estimates in July.
Still, Homeplus swung to a net loss of 300.1 billion won (US$255 million) in the year ending Feb. 28 from a profit a year earlier, while revenue shrank 4 percent to 8.6 trillion won amid weak household spending.
South Korean market leader E-Mart, part of the family-run Shinsegae Group, estimates it had 29 percent of the market last year, followed by Homeplus’s 25 percent and Lotte Mart’s 16 percent.
Selling the company’s biggest overseas business would provide Tesco with much-needed funds to pay off debt. The UK retailer, which in April reported the biggest annual loss in its 96-year history, has been weighing divestitures as it seeks to plug a pile of debt amounting to about £21.7 billion. Aside from Homeplus in South Korea, Tesco is exploring the sale of its Dunnhumby analytics business.
Tesco entered the South Korean market in 1999 under then-chief executive officer Terry Leahy with a £130 million investment in a joint venture with Samsung Group. The UK grocer initially held an 81 percent stake, before buying Samsung out of the venture in stages.
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