MBK Partners Clinches Deal for Tesco's Korean Operations

Tesco PLC confirmed on Monday that it sold its South Korean operations, known as Homeplus, to a consortium led by Asian private-equity firm MBK Partners LP for more than $6 billion, which gives the U.K.-based retailer cash to fund its turnaround plans.

The sale will jettison a big part of Tesco's global operations, following an accounting scandal, massive write-downs and upheaval in its management ranks. Tesco is receiving £ 3.4 billion worth of net cash proceeds after taxes and transaction fees. Those funds will redeem Tesco bonds and commercial paper that are maturing in the next 18 months and other measures including the possible purchase of some of its existing leasehold stores in the U.K., it said.

Selling the Homeplus chain gives Chief Executive Dave Lewis more ammunition to turn around performance at home, where Tesco has lost ground to German discounters Aldi and Lidl, which are expanding across the U.K. at a steady clip. Mr. Lewis has cut prices, closed unprofitable stores, reduced Tesco's product lineup and put more staff on the shop floor in an effort to stem the slide in market share.

Tesco said the sale, which is subject to shareholder and regulatory approvals, would help cut its debt burden. The transaction will cut its debt by £ 4.2 billion, reducing its debt load to £ 17.5 billion from £ 21.7 billion, the company said in a statement.

The deal would be among the largest transactions in Asia this year and the largest private-equity deal ever in South Korea, topping Hahn & Co.'s $3.6 billion purchase of control of Halla Visteon Climate Control Corp. from U.S. auto-parts supplier Visteon Corp. in December, according to Dealogic data. MBK Partners, which manages about $8.2 billion in assets, was founded in 2005 by a group of former Carlyle Group LP executives.

The Homeplus chain operates 1,075 outlet across South Korea and generated 9.3 trillion Korean won ($7.7 billion) in sales in the fiscal year through the end of February. The MBK-led consortium includes co-investors Canada Pension Plan Investment Board and Singapore state investment firm Temasek Holdings Pte. Ltd.

The Canadian fund, known as CPPIB, said in a separate statement that it is buying a 21.5% stake in Homeplus for $534 million as part of the deal.

HSBC Holdings PLC and Barclays PLC advised Tesco on the sale. The deal is expected to close in the fourth quarter of this year.

Write to Ian Walker at [e-mail] and Rick Carew at [e-mail]

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September 07, 2015 03:25 ET (07:25 GMT)

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