British supermarket chain Tesco agreed to sell all of its stores in Thailand and Malaysia to Thailand’s CP Group entities for an enterprise value of $10.6 billion.
“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,” said Dave Lewis, chief executive of Tesco.
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 group.
With a renewed focus on customers, colleagues and suppliers, the business has been focused on ensuring the strategy and the portfolio management approach deliver attractive returns for shareholders. 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 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.
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Tesco believes the sell 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.