Tesco, the largest retailer of the United Kingdom, has now completely exited the Chinese market following the sale of its stake in a joint venture to the state-run partner China Resources Holdings in a deal worth 275 million pound or $357 million.
After struggling for a few years to make a dent in the Chinese retail market, Tesco struck up a joint venture with CRH in 2014 and formed a new entity called the Gain Land venture. This joint venture helped Tesco to significantly increase its reach from the 131 odd operating stores that it had in China at the time of the joint venture formation to gain access to the almost 3000 physical stores of its partner.
The company said while announcing the deal that this sale of the 20 per cent stake that it had in the joint venture will now allow the company to simplify its operations and renew focus on its core operations. The money that would be generated from the deal will be put to use for general corporate purposes, the company added.
The deal is scheduled to complete on February 28, Tesco said.
The news of the deal pushed Tesco shares slightly by 0.7 per cent. Over the last one year, the stocks have gained a total of 12.4 per cent.
“This extra 275 million pounds of ‘forgotten value’ should be accretive to most street valuations,” said Bernstein analyst Bruno Monteyne.
Prior to its exit from the Chinese market, Tesco had also sold off its business in Japan and the United States – taking a hit on both the deals. It also had exited the South Korean business by selling it off. Following those deals, back in December, Tesco had signaled that it would be scaling down its one time ambitions of global expansion and had said that it would be reviewing its business operations in Thailand and Malaysia – the only two markets in Asia where company has wholly owned businesses.
If the company ends up also selling its businesses in Thailand and Malaysia and exits the markets, it would mean that the only foreign markets where Tesco will have operations outside of the Britain and Ireland would be the central European division which is made up of businesses in the Czech Republic, Hungary, Poland and Slovakia.
The exit of the company from the Asian markets will also be among the last major decisions that would be taken by Tesco CEO Dave Lewis, who is expected to be replaced in October by Ken Murphy.
In its 2020-21 financial year, Tesco is likely to start a 1 billion pound share buyback programme, expects Bernstein’s Monteyne.
“With this transaction and the possible sale of Thailand and Malaysia, Tesco’s biggest short-term concern could be how to efficiently return cash to shareholders,” he said.
(Adapted from Reuters.com)