Tesco’s $9bn sale of ‘jewel’ Asian businesses
Tesco, the UK’s largest supermarket chain, said it’s thinking of selling its businesses in Thailand and Malaysia on Monday, which contributed to 13% of its total profits last year. Investors took this as a hint of an early Christmas present as shares rose a very merry 5.9% in London.
The 2000 stores that operate under the Tesco Lotus Brand and have employed over 60,000 people, could be worth more than $9bn.[1] Without naming the interested bidders, Tesco also confirmed that despite receiving an “inbound interest,” the review was at an early stage, and "no decisions concerning the future of Tesco Thailand or Malaysia have been taken".[2]
While Tesco has already withdrawn from markets such as the US, Japan and Turkey, it had recently announced plans to open another 750 stores in Thailand, Laura Lambie, senior investment director at Investec Wealth and Investment told the BBC’s today programme. This highlights how Thailand is an important market for the Tesco company, with margins in Thailand being 3% higher than the UK. She commented how “there will have to be a fairly high asking price for Tesco to be prepared to let it go.”[3]
The retail giant has been pulling back from its ambitious global expansion plan since its 2014 accounting scandal, which costed more than the £214m in fines and compensation payments,[4] and in the face of competition from rival supermarket chains and online competitors like Amazon in the US. Low-cost Germany rival grocery chains Aldi and Lidl, as well as consumers’ shift to ecommerce, are among the reasons Tesco cited for thousands of job cuts in the UK this year.[5] In the same vein, the sale would mean that the British retailer could exit a competitive Asian region that has quashed European peers like Carrefour.[6] The hope therefore seems to be that the fresh cash will allow Tesco to restructure its business by opening up new shop formats, such as check-out free stores and the company’s own discount chain to be able to compete with Aldi and Lidl, and close unprofitable, older shops.
[1] https://www.bbc.co.uk/news/business-50708728
[2] https://www.tescoplc.com/news/2019/statement-regarding-asia/
[3] https://www.bbc.co.uk/news/business-50708728
[4] https://www.ft.com/content/f50ca092-13ab-11e7-80f4-13e067d5072c
[5] https://www.theguardian.com/business/2019/aug/05/tesco-cut-jobs-latest-redundancies-counter-staff
[6] https://www.bloomberg.com/news/articles/2019-12-08/tesco-considers-sale-of-thailand-malaysia-supermarket-units-dj
