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Britain’s biggest supermarket chain, Tesco (LON:TSCO) Plc, is considering the sale of its operations in Thailand and Malaysia as it refocuses on its domestic business amid mounting challenges in the core U.K. market.
The company is carrying out a strategic review of the businesses after receiving what it called inbound interest, according to a statement on Sunday. The deal could value the operations at as much as $9 billion, Dow Jones reported earlier, citing people familiar with the plan. Tesco (LON:TSCO) spokesman Simon Rew declined to comment on the valuation.
“The evaluation of strategic options is at an early stage, no decisions concerning the future of Tesco (LON:TSCO) Thailand or Malaysia have been taken,” the statement said, adding that the process could end without a transaction being concluded.
While a sale would mean losing the fastest-growing part of its operations, Tesco (LON:TSCO) would get an infusion of cash to continue the restructuring of its core U.K. operations that has seen thousands of job cuts and a shift to new formats like checkout-free stores. It would also allow the British retailer to exit from a competitive Asian region that’s already stymied the likes of European peers like Carrefour (PA:CARR) SA.
Tesco (LON:TSCO) Thailand is currently the biggest hypermarket chain in the country with 1,967 stores, while the Malaysian business has 74 stores. The Thai business alone could be valued at nearly $7 billion because it includes real estate assets, Dow Jones reported. In the first half of fiscal-year 2020, the retailer’s entire Asia business produced 2.6 billion pounds ($3.4 billion) of revenue, accounting for about 8% of total sales.
While still dominant in Thailand, Tesco (LON:TSCO) is grappling with challenges like chronically weak consumption trends, an increasingly stringent regulatory environment, and “formidable, well-connected competition,” said Maria Lapiz, Bangkok-based head of research at Maybank Kim Eng Securities (Thailand) Pcl.
“There is no longer term growth here, and Tesco (LON:TSCO) may want to rationalize its business and raise funding in the process as well,” she said.
Under outgoing Chief Executive Officer Dave Lewis, Tesco (LON:TSCO) streamlined its domestic operations with mass job cuts, and pulled back from some international markets. Ken Murphy, who will replace Lewis, will have to wrestle with a growing U.K. retail crisis exacerbated by Brexit, the shift to online shopping and competition from discounters Lidl and Aldi.
Tesco (LON:TSCO) is likely to see acquisition interest from regional conglomerates who’ve been successful in combining local operation know-how with the cache of international brands. In Malaysia, Japanese retail giant Aeon Co. acquired Carrefour’s operations in 2012 for $276 million.
Thai conglomerates like Central Group and the Singha Corp. are potential buyers who’ll be drawn to Tesco’s large retail network in the country, said Lapiz.
