Tesco Plc agrees to sell Thailand and Malaysia operations for £8.2 billion

On 09^th March 2020, the largest supermarket chain of the United Kingdom, Tesco Plc (LON:TSCO) declared that it has agreed to sell its businesses in Malaysia and Thailand. The sale will be made to a combination of C.P. Group companies (consisting of C.P. Retail Development Company Limited, Charoen Pokphand Holding Co., Ltd, CP All Public Limited Company and C.P. Merchandising Co., Ltd). The company has agreed to dispose of its businesses after receipt of interest from the conglomerate and after conducting a comprehensive review.

As per the company information, the consideration of the sale signifies an enterprise value to £8.2 billion (US$10.6 billion) on a cash-free and debt-free basis, translating to an Enterprise Value to EBITDA multiple of 12.5x.

According to Tesco Plc, it will return approximately £5,000 million to shareholders from the sale proceeds. It will be distributed through special dividends. Tesco Plc believes that this move will help the company to simplify its group structure while concentrating on augmenting its market share in the United Kingdom and increased operations in its home territory. However, the company is operating many other countries outside the United Kingdom, especially in Central Europe and Ireland.

The completion of this sale is anticipated to be finished in the second half of the year 2020, but it is conditional on regulatory and shareholder approvals.

The transaction will help fund £2.5 billion of pension contribution, which is expected to nullify the current funding deficit.

The Chief Executive of Tesco Plc said that this sale would permit the company to focus on its core business and bring about substantial value to shareholders.

Additionally, the company said that it is concentrating on operations in Ireland and the United Kingdom. It has 895 sites in its Eastern European operations and 3,769 stores in Britain.

If Tesco Plc exits Malaysia and Thailand, the company will be left with Ireland and its unprofitable central European segment with stores in Hungary, Poland, Czech Republic and Slovakia.

Tesco Plc closed down some of its global operations, including those in countries such as the U.S., China and Japan and has cut thousands of jobs till date. As per the media report, the incoming Chief Executive Officer will face an expanding crisis in U.K. retail sector which has turned worse due to Brexit, competition from discount stores and finally due to change of customer preferences to online shopping.

According to the Media report, the Thailand business is valued at nearly $7,000 million as it also consists of real estate assets. In the first half of the fiscal year 2020, Tesco Plc’s entire Asia operations generated about 8 per cent of total sales, i.e. 2.6 billion pounds in revenue.

TSCO - Overview of Tesco Plc

Tesco Plc is the prominent retailer of the United Kingdom with around 0.45 million employees. Every week, the company provides services to millions of consumers in stores and online. In the United Kingdom, the company serves approximately sixty-six shoppers in each second. It is listed on the London Stock exchange, and its shares trade in the main market segment under the ticker name TSCO. The stock is a constituent of the FTSE 100 index at the exchange.

TSCO – News Updates

On 25th February 2020, the company informed that it had reconfigured bakeries in bigger stores to satisfy customer demand as the company had been observing taste and preference changes of the customers. From May 2020, the company has decided to make a few modifications such as altering space and expansion in the range of alternatives compared to out-of-demand loaves of bread.

The company will continue to provide baked product in 257 stores, but for the rest of the bakeries, it is in the process of making a few modifications. However, in 201 stores, the most sought-after products will be baked fully while other products will be partially baked. Lastly, in the fifty-eight stores, the company was changing the bakery to complete bake-off, where the entire product will be provided pre-prepared, then baked and completed in store.

On 25th February 2020, the company announced that it had decided to sell its 20 per cent share to its joint venture partner, China Resources Holdings in Gain Land. Gain Land was established in the year 2014, which was a Chinese joint venture with CRH. As a result of selling this 20 per cent interest, the company will get net cash to the tune of £275 million, which is expected to be utilised for general corporate requirements.

TSCO – Trading Update

On 09th January 2020, the company announced a third-quarter and Christmas period trading statement for the year 2019/2020.

In the nineteen weeks to 4^th January 2020, the company’s total sales increased 0.2 per cent while like for like sales were reported at a growth of 0.4 per cent in the Republic of Ireland and the United Kingdom. Central Europe showed negative total sales change of 13.7 per cent and negative 10.3 per cent for Like for like sales in the 19-week period.

The Asia segment also showed negative like for like change of 1.6 per cent in the 19-week period.

During the Christmas period, The United Kingdom and the Republic of Ireland reported 0.2 per cent sales change, but Asia showed a positive 0.1 per cent of sale changes during the same period. In contrast, Central Europe showed a negative 12.8 per cent of sale changes during the Christmas period.

TSCO – Share price performance

On 10th March 2020, at around 09:09 AM (GMT), by the time of writing this report, the stock of Tesco Plc traded at a price of GBX 249.30 per share on the London Stock Exchange, an increase in the value of around 3.66 per cent or GBX 8.80 per share, as opposed to the closing price of the stock on the previous trading day, which has been reported to be at GBX 240.50 per share.

The share price of Tesco Plc recorded at GBX 260.40 as on 16^th December 2019 was its 1-year peak price, whereas the share price recorded at GBX 210.70 as on 27^th August 2019 was the 1-year low share price. The current share price was lower by 4.26 per cent from the 1-year high price, whereas the current share price was higher by 18.32 per cent from the 1-year low price.

The beta of the company’s stock has been reported at a value of 0.76, which shows that movement of the share price is less volatile against the movement in the comparative benchmark index.

At the time of writing, the company’s market capitalization was reported at GBP 23.55 billion with respects to the stock’s current market price. The free float and outstanding shares of Tesco Plc stood at 9.59 billion and 9.79 billion, respectively.

The annual dividend of the company was reported at GBX 6.75 per share, and the annual dividend yield was reported to be 2.81 per cent at the time of writing.