TESCO Plc agreed to sell its Asian businesses to Thai billionaire Dhanin Chearavanont for more than $10 billion, clinching a record deal in Thailand even as the coronavirus outbreak damps enthusiasm for mergers and acquisitions worldwide.
Britain’s largest supermarket chain said it plans a 5 billion-pound ($6.6 billion) special dividend after the sale of the assets to Chearavanont’s Charoen Pokphand Group. The U.K. grocer is gaining a cash infusion as it focuses on its home market, where it’s cutting thousands of jobs.
The company joins Carrefour SA of France and Metro AG of Germany in divesting Asian operations as the European retailers focus on their domestic markets. Metro agreed to sell its Chinese business for about 1.9 billion euros last year, while Carrefour also inked a deal to dispose its operations in China.
The sale marks the end of Tesco’s 22-year-presence in Thailand, where it runs more than 2,000 hypermarkets and convenience stores under the Tesco Lotus brand.
Dhanin is buying back a chain that CP Group founded in 1994 and sold to Tesco during the Asian financial crisis four years later. In 2013, the investor reclaimed his control of another retail business, Siam Makro Pcl, the Bangkok-based operator of cash-and-carry shops, by paying $6.6 billion to buy out a stake from SHV Holdings.
"This acquisition will put CP Group at the top of the Thai retailing food chain, ” said Maria Lapiz, an analyst at Maybank Kim Eng Securities (Thailand) Pcl in Bangkok. It’s the biggest M&A deal ever in Thailand, and the largest in Asia this year, according to data compiled by Bloomberg.
Central Group, controlled by the Chirathivat family, was also interested in the purchase, Bloomberg has reported. Its approach triggered the sale process, according to a person familiar with the situation.
The deal was codenamed Aviary, with some exotic birds representing the main seller and its units: "Tawny” for Tesco,"Toucan” for Tesco Thailand and "Macaw” for Tesco Malaysia, according to people familiar with the matter, who asked not to be identified because the talks were private.
For Tesco, the sale and payout to shareholders is a "good deal to our minds, ” said Clive Black, an analyst at Shore Capital. The price is at the upper end of expectations though the company is losing exposure to a growth market, he said. The U.K. grocer also said the deal will eliminate its pension deficit.
Tesco shares fell 0.9% on Monday in London even as the FTSE 100 Index slumped 6.8% amid a global stock selloff. Over the past 12 months Tesco has risen about 5%.
Tesco announced a strategic review of the unit in December. People familiar with the situation had said the businesses could fetch more than $7 billion. In Malaysia, Tesco has more than 70 shops, according to its annual report.
Dhanin has been acquiring companies at home and abroad to expand as growth in Southeast Asia’s second-biggest economy has slowed. The investor has a net worth of $5.2 billion, making him the nation’s second-richest person, according to the Bloomberg Billionaires Index. Many of his assets are owned through closely-held holding companies that he shares with his brothers.
The sale comes as Tesco Chief Executive Officer Dave Lewis prepares to hand over to former Walgreens Boots Alliance Inc. executive Ken Murphy. It continues the U.K. grocer’s retrenchment from international markets, after disposals in the U.S., South Korea and China.
Tesco has also been weighing options for its Polish business and "we would not be surprised to see a process around a sale, ” Shore Capital’s Black said.
Greenhill & Co., Goldman Sachs Group Inc. and Barclays Plc advised Tesco. - Bloomberg
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