By P.R. Venkat in Singapore and Rick Carew in Hong Kong
Retailer Tesco PLC is considering a sale of its South Korea
retail operations--its largest outside the U.K.--potentially
raising up to $7 billion dollars to fund its turnaround efforts,
according to people familiar with the situation.
Tesco has hired HSBC Holdings PLC to manage a process to sell
the retail operation, which is expected to receive interest from
private-equity firms, these people said. A sale would jettison a
big chunk of Tesco's global operations after a series of blunders
at the U.K. retail chain including an accounting scandal, massive
write-downs, and upheaval in its management ranks.
It could be a considerable deal for private-equity firms in
Asia, as South Korea's banks have shown a willingness in the past
to write big checks to finance acquisitions of strong
cash-flow-generating businesses like retailers.
Bankers and investors have kept a close watch on Tesco's Asia
operations, which are substantial in markets including South Korea,
Thailand, and to a lesser extent Malaysia. Tesco vies with
Carrefour SA of France for the position of world's second-largest
retailer by revenue behind Wal-Mart Stores Inc.
Tesco's financial woes have put it in a situation where it has
few good options. It posted a pretax loss of GBP6.38 billion ($9.52
billion) for the year ended Feb. 28, compared with a year-earlier
profit of GBP2.26 billion. Its still-leading market share in the
U.K. has steadily eroded in the face of competition from both
higher-end grocery stores and aggressive discounters.
Those problems at home have spurred its new chief executive Dave
Lewis to look elsewhere for cash to fund a turnaround. The new
management team must wrestle with the potential sale of the Asia
operations, which could provide cash, but also would take a bite
out of the company's overall revenue.
At the same time, South Korea has been a tough market for many
retailers, foreign or otherwise, to crack.
South Korean brick-and-mortar retailers have suffered as more
shoppers hunt for bargains online. The country's Internet and
mobile penetration rates are among the world's highest, and new
competition from the likes of mobile commerce companies such as
Coupong, which received a $1 billion investment from Japan's
SoftBank Corp. this week, are putting pressure on retailers with
higher fixed costs.
Korean buyers are also making purchases from overseas online
shopping sites where they can avoid the steep markup on imported
goods at local retailers. Sometimes similar goods can be purchased
for as little as half the retail price, including shipping.
Foreign retailers, however, have had an especially tough time in
a market dominated by local players. Both Wal-Mart and Carrefour
have long since exited the South Korea market, selling to local
competitors in 2006. Wal-Mart sold its 16 outlets there for $872
million to Shinsegae Co. and E. Land Group purchased Carrefour's
operations for $1.86 billion that same year.
Write to P.R. Venkat at venkat.pr@wsj.com and Rick Carew at
rick.carew@wsj.com
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