CP Group set to buy Tesco’s Thai, Malaysian businesses in deal valued at over Bt332 billion
Tesco announced today (March 9) that it has entered into a conditional agreement with a combination of CP Group entities – CP Retail Development, Charoen Pokphand Holding, CP All and CP
Merchandising – to sell its business in Thailand and Malaysia in a deal valued at $10.6 billion (Bt332.6 billion). The move is aimed at simplifying the Tesco Group, enabling a stronger focus on its retail businesses in the UK and Ireland and in Central Europe.
“The disposal allows Tesco Group to further ‘de-risk’ the business by reducing indebtedness through a significant pension contribution of £2.5 billion [Bt102.3 billion]. The consideration payable to Tesco pursuant to the disposal represents an enterprise value of $10.6 billion on a cash and debt-free basis, representing an EV/EBITDA multiple of 12.5x2,” the company said in a press statement.
Under the terms of the disposal, net cash proceeds are expected to be $10.3 billion before tax and other transaction costs.
“The disposal is conditional on, inter alia, the approval of Tesco shareholders at a general meeting of the company’s shareholders. The disposal is also subject to customary regulatory approvals in Thailand and Malaysia. A circular containing further details of the disposal and a notice convening a general meeting will be sent to Tesco shareholders as soon as practicable. It is also expected that shortly after completion, a separate general meeting will be convened to seek shareholder approval for the return of proceeds and associated share consolidation. A separate circular will be sent to shareholders containing further details on these,” the statement added.
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 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, the statement said.
“It is from this strengthened position that the board decided to respond to the expressions of interest it received for 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 company said.
“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,” the firm added.
Tesco began operating in Thailand in 1998 through Ek-Chai, which operates under the name “Tesco Lotus”, a network of stores comprising various formats across Tesco Thailand as well as an online shopping platform and third-party applications such as Lazada and Happy Fresh.
Tesco Lotus generated approximately £4.1 billion in revenue in the financial year ended February 23, 2019. It operates a network of almost 2,000 stores in Thailand and serves more than 13 million customers each week, according to company statistics.
