Tesco pays out £150m to offload its failed US adventure

Humiliation as group lends billionaire £80m to take over Sir Terry Leahy's American dream

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The Independent Online

Tesco has thrown in the towel on its loss-making US venture, selling its Fresh & Easy chain to the US billionaire Ron Burkle after failing in the American market.

It will lend around £80m to the new business, meaning total expenses related to the sale, including the loan and the closure of the remaining Fresh & Easy stores, could total £150m.

The sale, which will see Mr Burkle's Yucaipa investment vehicle take over the vast majority of the chain's two hundred stores, will mark the end of an ill-fated adventure in the western United States, initiated by Sir Terry Leahy, the supermarket giant's former chief executive. But years of losses finally forced the incumbent, Philip Clarke, to seek a buyer.

Yesterday, the company said Yucaipa will acquire 150 Fresh & Easy stores, along with distribution and production facilities. More than 4,000 employees will transfer to Mr Burkle's firm. Meanwhile, Tesco will close the remaining Fresh & Easy stores in coming weeks.

"The decision we are announcing today represents the best outcome for Tesco shareholders and Fresh & Easy's stakeholders," Mr Clarke said. "It offers us an orderly and efficient exit from the US market, while protecting the jobs of more than 4,000 colleagues at Fresh & Easy."

The chain began opening its first stores across the pond in November 2007. Since then, it has spread across California, Nevada and Arizona, employing more than 5,000 people. Of those, 1,300 work at the distribution and production facilities that will be transferred to Yucaipa.

Back in 2006, as the company was plotting its foray into the lucrative US market, Sir Terry, the then chief executive, described plans as a "tremendously exciting move" for the business.

In fact, the venture proved tremendously problematic. In 2011, the move was criticised by Warren Buffett, the billionaire investor behind Berkshire Hathaway, who reportedly described the move as foolhardy. Berkshire is a Tesco investor.

More recently, Sir Terry's legacy was criticised by Lord MacLaurin, the former Tesco chairman. "When you judge his legacy, it's very sad," he said at the group's annual meeting earlier this year.

"This company is not going to be fixed overnight. It is a two or three-year job and I urge you [current chairman Sir Richard Broadbent] to give [Sir Terry's successor] Philip Clarke and his team time to do this."

Speaking before the deal was made public, Richard Marwood, a portfolio manager at Axa Investment Managers in London, told Bloomberg that "most people will just be relieved that the ongoing stream of losses from the US will be over and the uncertainty is no longer hanging over us."