Tesco agrees to sell Asia business to CP Group for $10.6bn

Nick Gladding
Senior Retail Analyst
@RetailAnalysis

Date : 09 March 2020

Tesco has announced that it has reached an agreement with CP Group with respect to the sale of its Asian business that values it at $10.6bn (£8.2bn).

In a statement, Dave Lewis Group CEO said "Following inbound interest and a detailed strategic review of all options, we are announcing today the proposed sale of Tesco Thailand and Tesco Malaysia. This sale releases material value and allows us to further simplify and focus the business, as well as to return significant value to shareholders." He added " I am confident that the agreement we have reached with CP Group presents an exciting opportunity for their continued success."

Agreement details:

  • The disposal provides Tesco with net cash proceeds of $10.3bn (equivalent to £8.0 bn) before tax and other transaction costs
  • Tesco will return £5bn to shareholders through a special dividend
  • £2.5bn will be used to reduce indebtedness through a pension fund contribution which along with other measures is expected to eliminate the current funding deficit. It should also significantly reduce the prospect of Tesco needing to make further pension fund deficit contributions in future
  • Completion of the deal is expected in the second half of 2020, subject to regulatory approval in Thailand and Malaysia

Tesco Asia

  • Tesco Lotus is one of Thailand's leading grocery retailers, generating revenues of £4.1bn in 2018/19 (ex VAT inc. fuel). Tesco entered Thailand in 1998 and today it is the retailers largest business outside of the UK, operating 1,967 stores throughout the country and serves over 13m customers each week
  • Tesco Malaysia generated c. £800m in revenue in 2018/19. It operates 68 stores across the country, having entered the market in 2002 through a joint venture
  • In both countries, Tesco operates a highly successful mall business alongside its retail stores

Background to deal:

Tesco revealed in December that it was considering a sale of its operations in Thailand and Malaysia following significant inbound interest. Besides CP Group, offers are believed to have been made by two other Thai family conglomerates: Central Food Group, Thailand's fourth largest grocery group and TCC Group a major shareholder in Thailand's third largest food retailer Berli Jucker, owner of Big C supermarkets.

The deal also follows on from Tesco's withdrawal from its joint venture in China, which was announced towards the end of February. If the CP Group deal is approved by the regulatory authorities in both markets, it will mark a significant reduction in Tesco's international footprint. Thailand is Tesco's largest market for sales outside the UK and while its Malaysia business is relatively small, it will follow on from further withdrawals in Asia from Japan and South Korea in recent years. Tesco's remaining presence in Asia, will be in India, where it has a JV with Tata Group's Trent Hypermarkets retail arm.

Who is CP Group?

CP Group is a diversified group operating across many industries from industrial to service sectors. Its investments currently span 13 business groups and 21 countries. The sale will be split across a combination of CP Group businesses, including; C.P. Retail Development Company Limited, Charoen Pokphand Holding Co., Ltd, CP All Public Limited Company and C.P. Merchandising Co., Ltd. 

From a retailing perspective CP Group has a major food manufacturing business, Charoen Pokphand Foods Public Company Limited that combines vertically integrated agriculture and manufacturing of products across 17 markets. While CP ALL is already the grocery market leader in Thailand, where it operates amoungst other businesses, wholesaler Siam Makro, ecommerce website 24 Shopping, as well as the franchise to operate 7-Eleven convenience stores in the country.

Creation of an ASEAN retail powerhouse...

CP Group is already Southeast Asia's largest grocery retailer, ending its FY19 with 11,712 7-Eleven stores and a strong cash and carry and foodservice business in Thailand. However, this deal will help the business on its journey to becoming a leading retail powerhouse in the region. We predict that CP Group will extend its market leadership in Thailand, with market share growing from c.15% today to c.23% once the deal is complete. While the Tesco business of hypermarkets and supermarkets, plus convenience stores will nicely complement its existing portfolio of CVS and wholesale operations in the market. While CP Group has ambitions to expand Siam Makro across ASEAN, the deal will also see the business stretch its retail influence into Malaysia for the first time. For more information about CP Group - check out our retailer page.

Tesco will report its annual results on 8 April 2020.

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