GSRM7223: The disposal will simplify the Tesco Group, enabling a stronger focus on its retail businesses in the UK and Ireland: Marketing Management Assignment, UIU, Malaysia

“The disposal will simplify the Tesco Group, enabling a stronger focus on its retail businesses in the UK and Ireland and in Central Europe. The disposal also realizes material value for Tesco’s shareholders and allows the Tesco Group to further de-risk the business by reducing indebtedness through a significant pension contribution of £2.5bil, ” it said.

Tesco said the disposal represents an enterprise value of US$10.6bil (equivalent to £8.2bil) on a cash and debt-free basis, representing an EV/EBITDA multiple of 12.5 times. The net cash proceeds are expected to be US$10.3bil (£8bil) before tax and other transaction costs.

To recap, Tesco began operating in Thailand in 1998 through Ek-Chai, which operates under the name “Tesco Lotus”, a network of stores comprising various formats across Tesco Thailand as well as an online shopping platform and third-party applications such as Lazada and Happy Fresh.

Tesco Lotus generated approximately £4.1 billion in revenue (excl. VAT, incl. fuel) in the financial year ended 23 February 2019, operates a network of 1,967 stores across Tesco Thailand, and serves over 13 million customers each week. As part of its offer to customers and to support the core grocery business, in many large freehold and leasehold stores Tesco Thailand has developed an attractive and profitable mall business, which in its own right is one of the largest such operators in the market.

As for Malaysia, Tesco began operating in the country under the name Tesco Malaysia in 2002, as part of a joint venture with Sime Darby Bhd. Tesco Malaysia is a leading grocery retailer in the Malaysian market and one of the most recognized retail brands in Malaysia.

“It generated approximately £800mil in revenue (excl. VAT, incl. fuel) in the financial year ended 23 February 2019 and operates a network of 68 stores across Malaysia. Tesco Malaysia supplies its stores from two distribution centers in Malaysia, with its stores and distribution centers located on and within land and buildings either owned, leased, or tenanted by Tesco Malaysia, ” it said.

As in Thailand, Tesco Malaysia operates a highly successful mall business alongside its retail stores from its freehold and leasehold estate. Tesco said the consideration payable to Tesco after the disposal represents an enterprise value of US$10.6bil on a cash and debt-free basis, representing an EV/EBITDA multiple of 12.5 times.

The transaction values Tesco Thailand at an enterprise value of US$9.9bil, including US$400mil of net cash. The transaction values Tesco Malaysia at an enterprise value of US$700mil, including US$600mil of net debt. “Following completion, the board intends to return c.£5bil to shareholders by way of a special dividend, ” it said.

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