British retailer Tesco Plc <TSCO.L> has invited at least six firms including KKR & Co <KKR.N> and Carlyle Group <CG.O> to bid for its South Korean unit Homeplus, valued at about $6 billion 4 billion pounds), people familiar with the matter told Reuters.
A sale is seen as Tesco’s best bet to cut debt and fund a turnaround plan as it battles to recover from an accounting scandal and reverse market share losses at home to discount chains Aldi and Lidl.
If sold to private equity for $6 billion – which the sources say represents the equity value of Homeplus – the sale would be Asia’s biggest private equity deal, according to Thomson Reuters data. It is also set to be the region’s second-largest consumer retail deal ever.
London-based CVC Capital Partners, Hong Kong-based Affinity Equity Partners and Asia-focused MBK Partners were also invited to bid, the people said, declining to be identified as the sale process has not been formally made public.
A spokesman for Homeplus said the company does not comment on rumours. KKR, Carlyle, MBK and CVC declined to comment, while Affinity did not respond to a request for comment.
Separately, Hyundai Department Store Co Ltd <069960.KS> said on Tuesday it is considering a bid. Hyundai Department Store, which has a market value of some $3 billion, is not part of the Hyundai Group.
A CHALLENGING PURCHASE
Homeplus is Tesco’s largest business outside Britain, with annual revenue of 7.05 trillion won ($6.3 billion) in 2014. It has more than 400 stores, 500 franchise stores and over six million customers a week.
But the business, which operates in a mature and competitive market, has been under some pressure, recording at least two straight years of declines in same-store sales.
“For any buyer, the challenge is how to turnaround the business. For private equity, it’s a property play too and they can strip the real estate attached to the business and make some return,” one person familiar with the process said.
Given the deal size, bidders moving to the next round are likely to team up or look to bring in sovereign wealth funds to help finance the acquisition, the people added.
Singapore state investor Temasek Holdings [TEM.UL] and other investors in private equity funds, such as pension funds, are likely to be approached as the bidding proceeds, said one person.
Temasek has shown interest in retail assets and last year acquired a 25 percent stake in Hong Kong tycoon Li Ka-shing’s A.S. Watson for about $5.7 billion, in its single-biggest investment ever.
Temasek did not immediately respond to request for comment.
Tesco and its advisor HSBC <HSBA.L> have provided the potential suitors with Homeplus’ financial details and asked for indicative bids to be submitted later this month, the people said.
They added that the business had about $750 million in earnings before interest tax, depreciation and amortisation.