MBK Partners Near to a $6Billion Tesco Korea acquisition

A group led by MBK Partners Ltd. is nearing an agreement to buy Tesco Plc’s South Korea business for about $6 billion including debt, in what could be the country’s biggest private-equity deal, people with knowledge of the matter said.

The group, which includes South Korea’s National Pension Service, clinched exclusive negotiating rights Wednesday morning to purchase Tesco’s Homeplus business, according to one of the people. Executives from Tesco and MBK are in Hong Kong Wednesday to finalize details of an agreement, the person said, asking not to be identified as the information is private.

MBK, North Asia’s biggest independent buyout firm, beat a rival consortium led by KKR & Co., the people said. Completing the deal would give the MBK-led group a discount store chain that’s second only to E-Mart Co. in South Korea, with more than 900 stores generating annual revenue of over $7 billion.

Aside from joining Wal-Mart Stores Inc. among global retailers pulling out of the country, selling the company’s biggest overseas business would provide U.K.-based Tesco with much-needed funds to pay off debt. Tesco shares have fallen 20 percent in the past year, compared with an 11 percent decline in the benchmark FTSE 100 Index.

Biggest Loss

The MBK consortium has secured at least 4 trillion won ($3.4 billion) of financing from domestic financial institutions Hana Daetoo Securities Co., NH Investment & Securities Co., Shinhan Bank and Woori Bank, which will probably be syndicated to more lenders, other people with knowledge of the matter said. The group isn’t expected to take up the around 4 trillion-won staple financing being separately offered by HSBC Holdings Plc, BNP Paribas SA, Australia & New Zealand Banking Group Ltd. and Sumitomo Mitsui Banking Corp., they said.

Hong Seikyu, a spokesman for MBK at Weber Shandwick LLC in Seoul, declined to comment. Annie Good, a press official for Tesco, and Chi Young Hye, a spokesman for the National Pension Service, also declined to comment.

The U.K. retailer, which in April reported the biggest annual loss in its 96-year history, has been weighing divestitures as it seeks to plug a pile of debt amounting to about 21.7 billion pounds ($33.2 billion). Aside from Homeplus in South Korea, Tesco is exploring the sale of its Dunnhumby analytics business.

The South Korean business is Tesco’s “crown jewel” in Asia with a valuation of 4 billion pounds, trumping the 1.6 billion pounds Dunnhumby is valued at, according to Credit Suisse Group AG estimates in July. Still, Homeplus swung to a net loss of 300.1 billion won in the year ended Feb. 28 from a profit a year earlier, while revenue shrank 4 percent to 8.6 trillion won amid weak household spending.

South Korean market leader E-Mart, part of the family-run Shinsegae Group, estimates it had 29 percent of the market last year, followed by Homeplus’s 25 percent and Lotte Mart’s 16 percent.

At home, Tesco Chief Executive Officer Dave Lewis is seeking to revive the company’s market-leading grocery business in the U.K., where sales are falling amid a price war fueled by the expansion of German discounters Aldi and Lidl.

Tesco entered the South Korean market in 1999 under then-CEO Terry Leahy with a 130 million-pound investment in a joint venture with Samsung Group. The U.K. grocer initially held an 81 percent stake, before buying Samsung out of the venture in stages.

(Source: Bloomberg)