British grocer Tesco agreed to sell its South Korean business to a group led by private-equity firm MBK Partners for 4 billion pounds (US$6.1 billion) in a bid to ease the strain on its debt-laden balance sheet, Bloomberg News reported.
The deal will reduce borrowings by 4.23 billion pounds, Tesco said in a statement on Monday.
The group of buyers includes the Canada Pension Plan Investment Board, Public Sector Pension Investment Board and Temasek Holdings.
The sale represents a landmark for Tesco chief executive Dave Lewis in his efforts to revive the struggling retailer.
By exiting its largest international business, the company is taking a key step in trimming a debt pile of about 21.7 billion pounds that has led to its credit ratings being cut to junk, the news agency said.
Further divestments may follow, with Tesco also exploring the sale of its Dunnhumby data-analytics business, it said.
“Completing this disposal is very positive for Tesco’s balance sheet,” David Payne, an analyst at Nomura Holdings Inc., said by phone. “Investors have been getting more nervous about a possible rights issue at Tesco.”
Tesco will book a loss of about 150 million pounds from the sale.
Taxes and fees associated with the deal will reduce the net cash proceeds to about 3.35 billion pounds, to be paid in a combination of US dollars and Korean won.
The purchase values the unit’s equity at about US$4.9 billion, MBK said.
The grocer plans to use most of the money to pay off debt over the next 18 months.
The company also said it will be able to consider investment opportunities such as the “selective” purchase of some of the store properties it leases in the UK.
The acquisition gives the MBK-led group a discount store chain that’s second only to E-Mart in Korea, with 1,075 outlets generating annual revenue of more than US$8 billion.
E-Mart, part of the family-run Shinsegae Group, estimates it had 29 percent of the market last year, followed by Homeplus’ 25 percent and Lotte Mart’s 16 percent.
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