Private Equity Giants Might Go After Tesco’s South Korean Empire


June 11, 2015


Tesco announced this week that it is looking to sell its South Korean arm of the business empire, as it tries to turn its business fortunes around. The British retailer has invited at least six firms to bid for the company, among the firms some very notable private equity companies.


Tesco’s Plan

The retailer giant announced it is selling its South Korean unit, Homeplus, which according to Reuters’ sources is valued at $6 billion. The South Korean unit is Tesco’s largest business operation outside Britain.

In 2014, Homeplus’ annual revenue stood at $6.3 billion. It currently runs over 400 stores in the country, with around six million customers visiting the stores each week.

The spokesperson for the company has declined comments, stating Homeplus doesn’t comment on rumours.

Tesco’s sales have gone down in recent months and the company is likely to continue focusing on its UK business. Selling unwanted units, like Homeplus, will help the company concentrate on the British markets, as well as pay off some of its debt.

According to the London Evening Standard, Tesco is “looking to slash capital spending, as well as fund a vicious supermarket price war” in Britain to counter the threat of cheaper chains like Lidl.


Potential Bidders

According to the reports, Tesco has so far invited six bidders to look into a possible buyout. Among these companies are some of the biggest private equity giants, such as KKR & Co and Carlyle Group.

Furthermore, London-bases CVC Capital Partners and MBK Partners, which has a clear Asia-focus on its investments, are considering launching a bid for Homeplus.

The unit might also attract bids from private equity and pension funds. Outside of private equity firms, Hyundai Department Store Co Ltd has already announced it is currently considering a bid.

So far, the private equity firms have declined to comment on any possible talks.


Challenging Investment

Homeplus is likely to attract even more interest from private equity firms. The company has a number of valuable property assets from its sale-and-leaseback agreements. The buyer could use these to generate money.

“For any buyer, the challenge is how to turnaround the business. For a private equity, it’s a property play too and they can strip the real estate attached to the business and make some return,” one of the sources told Reuters.

The South Korean retail market is currently highly competitive. Retailers like Wal-Mart have already withdrawn from the matured market.

Furthermore, the country’s retailers are very reliant on the hypermarkets for their revenues. Business Day Live wrote on Wednesday, Homeplus has over 80% of its revenue coming from these hypermarkets. But the country’s hypermarket sector is very crowded, with South Korea having one hypermarket for every 100,000 customers.

But analysts believe the deal could potentially be among the biggest buyouts in the region. It is likely the sale will see a few firms join forces.

The bids are most likely going to be submitted by the end of the month, so it could still be a while before more details emerge.

In the meantime, you can find private equity deals at DealMarket.

Share on FacebookTweet about this on TwitterShare on Google+Share on LinkedIn