Tesco dumps Turkish unit at huge discount to make value - UK
Fin24 - Jun 10th 2016, 11:59
London - Tesco agreed to sell its majority stake in the Turkish Kipa chain, offloading the unprofitable unit at a huge discount to its market value.
The sale of the 95.5% stake to Migros Ticaret A.S will fetch £30m, Tesco said on Friday, also announcing the sale of UK restaurant chain Giraffe for an undisclosed sum. Kipa shares plunged 20% in Istanbul, still valuing the Izmir-based company at about 2.5 billion liras ($861m).
The sale at such a big discount illustrates Tesco’s eagerness to exit a country where Bernstein analysts estimate it lost £20m last year.
The UK grocer’s liabilities will be reduced by £110m because of the transaction, while analysts at Exane BNP Paribas expect earnings to be boosted by as much as 3%.
"The sale of Kipa reflects the particular strategic challenge we have faced in Turkey as a small regional player in a highly competitive market," Tesco said in the statement.
"It removes the need for the sustained investment required to enable the business to compete independently."
The decline in Tesco Kipa shares was the steepest since January 2005. Migros rose as much as 7.4%, while Tesco fell 1.4% to 155.75 pence.
The sale of Kipa marks Chief Executive Officer Dave Lewis’s second major international disposal after last year’s 4 billion-pound divestment of Tesco’s Korean operations. The asset sale unwindS Tesco’s expansion of the last two decades, and focuses the retailer more on its efforts to weather a domestic price war that is squeezing earnings.
Kipa is the smallest of five central and eastern European businesses Tesco operates, generating revenue of £501m last year, equivalent to 0.9% of sales. Revenue at the unit has fallen for three consecutive years amid fierce competition.
"Turkey is a competitive market and the market leader Bim is an extremely effective hard discounter," Charles Allen, an analyst at Bloomberg Intelligence, said by e-mail. "Tesco Kipa did not have the funds to build scale."
In a separate transaction, Tesco agreed to sell Giraffe to Boparan Restaurant Holdings, owner of the Harry Ramsden’s chain of fish-and-chip shops.
Tesco acquired Giraffe in 2013 for £48.6m in an effort to make its large stores more attractive destinations for shoppers. The grocer said its supermarket cafes would meet demand for in-store dining.
Tesco’s financial position has been weakened by a price war in the UK, coupled with onerous leases on stores and pension obligations. As of April, the company’s total indebtedness stood at £15.5bn.From Fin24
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