Tesco mulls joining in $3bn Hong Kong bid tie-up

UK grocer could team up with CRE to buy leading supermarket chain

Tesco is talks to take over Hong Kong's leading supermarket chain ParknShop with its Chinese partner, China Resources Enterprise (CRE).

Hutchison Whampoa, the Hong Kong conglomerate headed by the billionaire Li Ka-shing, is seeking $3bn-$4bn (£1.9bn-£2.5bn) for the ParknShop chain. The talks comes after the UK grocer earlier this month unveiled a "memorandum of understanding" to merge its Chinese business with the state-backed retailer CRE, which could see the Tesco brand disappear from its 131 stores on the mainland.

The Chinese retail and beer conglomerate said it had already spoken with Tesco about bidding for ParknShop, a deal which would make it the biggest supermarket chain in the former British colony.

Frank Lai, the finance director at CRE, said yesterday: "We will consider to bid with Tesco; it's one of the discussions we have with them."

He added the acquisition could help CRE "increase market share, improve efficiency and achieve economy of scale" in Hong Kong but it could face competition rivals.

ParknShop is understood to have received bids from eight operators, including the world's biggest retailer Walmart, Lotte and Aeon.

ParknShop is the second-largest player in Hong Kong's $6.6bn (£4.2bn) grocery sector with a 33 per cent share, behind the market leader Wellcome with 40 per cent.

Mr Lai added that ParknShop was a "quality asset" but declined to say how much he thought it might be worth.

Tesco's attempt to merge with CRE, which has 2,986 Vanguard stores in China, was an admission that it would be better to find a partner than go it alone in China.

The combined retail group would have revenue of £10bn, although it may take months for the deal to complete. The British grocer said the potential deal was consistent with a more "disciplined approach to the allocation of capital".

Under the proposed joint venture, Tesco is expected to have a stake of 20 per cent, while CRE would have 80 per cent.

Although Tesco will provide CRE with logistics and supply-chain expertise under the proposed deal, it will have to pay hundreds of millions of pounds to join forces with its much-bigger Chinese rival.

Tesco launched in China in 2004 via a joint venture with a local chain, Hymall, and then acquired a further 40 per cent of the venture two years later.

However, its underlying sales fell by 1.1 per cent in the country last year and Tesco said in April that it had "adopted a more cautious stance in China".

It has been pulling back on its expansion there since it unveiled plans in 2010 to build 80 large shopping malls, anchored by a Tesco, over a five year period.

On home soil, Tesco is investing heavily to turn around its lacklustre performance in the UK.

Its domestic like-for-like sales fell by 1 per cent in the 13 weeks leading to May 25, partly driven by falling demand for consumer electronics, such as big televisions.

Checking out of foreign ventures

Tesco made its first foray outside the UK and Republic of Ireland in 1995, when Britain's biggest supermarket entered Hungary by acquiring the local retailer S-Market's 26 stores.

Under its former chief executive, Sir Terry Leahy, Tesco went on a land-grab offensive from the late 1990s that eventually saw it open in 13 countries outside the UK to give it eye-watering revenue of £72.4bn last year. But in recent years, Tesco has retreated from key markets with its tail between its legs.

The supermarket, which is led by Philip Clarke, decided to exit Japan in 2011 and this year said that it was throwing in the towel on its failed US venture, Fresh & Easy.

Following a £1bn writedown on Fresh & Easy's assets, the group also said it was seeking the safe arms of a bigger rival in China this month.

James Thompson

Start your day with The Independent, sign up for daily news emails
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Compliance Manager

£40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...

SThree: Talent Acquisition Consultant

£22500 - £27000 per annum + OTE £45K: SThree: Since our inception in 1986, STh...

Recruitment Genius: Experienced Financial Advisers and Paraplanners

Negotiable: Recruitment Genius: This extremely successful and well-established...

Guru Careers: FX Trader / Risk Manager

Competitive with monthly bonus: Guru Careers: We are seeking an experienced FX...

Day In a Page

Seifeddine Rezgui: What motivated a shy student to kill 38 holidaymakers in Tunisia?

Making of a killer

What motivated a shy student to kill 38 holidaymakers in Tunisia?
UK Heatwave: Temperatures on the tube are going to exceed the legal limit for transporting cattle

Just when you thought your commute couldn't get any worse...

Heatwave will see temperatures on the Tube exceed legal limit for transporting cattle
Exclusive - The Real Stories of Migrant Britain: Swapping Bucharest for London

The Real Stories of Migrant Britain

Meet the man who swapped Romania for the UK in a bid to provide for his family, only to discover that the home he left behind wasn't quite what it seemed
Cheaper energy on the way, but it's not all sunshine and rainbows

Cheaper energy on the way, but it's not all sunshine and rainbows

Solar power will help bring down electricity prices over the next five years, according to a new report. But it’s cheap imports of ‘dirty power’ that will lower them the most
Katy Perry prevented from buying California convent for $14.5m after nuns sell to local businesswoman instead

No grace of God for Katy Perry as sisters act to stop her buying convent

Archdiocese sues nuns who turned down star’s $14.5m because they don’t approve of her
Ajmer: The ancient Indian metropolis chosen to be a 'smart city' where residents would just be happy to have power and running water

Residents just want water and power in a city chosen to be a ‘smart’ metropolis

The Indian Government has launched an ambitious plan to transform 100 of its crumbling cities
Michael Fassbender in 'Macbeth': The Scottish play on film, from Welles to Cheggers

Something wicked?

Films of Macbeth don’t always end well - just ask Orson Welles... and Keith Chegwin
10 best sun creams for body

10 best sun creams for body

Make sure you’re protected from head to toe in the heatwave
Wimbledon 2015: Nick Bollettieri - Milos Raonic has ability to get to the top but he must learn to handle pressure in big games

Nick Bollettieri's Wimbledon files

Milos Raonic has ability to get to the top but he must learn to handle pressure in big games
Women's World Cup 2015: How England's semi-final success could do wonders for both sexes

There is more than a shiny trophy to be won by England’s World Cup women

The success of the decidedly non-famous females wearing the Three Lions could do wonders for a ‘man’s game’ riddled with cynicism and greed
How to stop an asteroid hitting Earth: Would people co-operate to face down a global peril?

How to stop an asteroid hitting Earth

Would people cooperate to face a global peril?
Just one day to find €1.6bn: Greece edges nearer euro exit

One day to find €1.6bn

Greece is edging inexorably towards an exit from the euro
New 'Iron Man' augmented reality technology could help surgeons and firefighters, say scientists

'Iron Man' augmented reality technology could become reality

Holographic projections would provide extra information on objects in a person's visual field in real time
Sugary drinks 'are killing 184,000 adults around the world every year'

Sugary drinks are killing 184,000 adults around the world every year

The drinks that should be eliminated from people's diets
Pride of Place: Historians map out untold LGBT histories of locations throughout UK

Historians map out untold LGBT histories

Public are being asked to help improve the map