Tesco poised to separate internet business in readiness for demerger

Tesco, the UK's largest supermarket, is planning to separate out its Tesco Direct internet shopping operation as a distinct business with a view to demerger, giving it its own stockmarket listing.

A person familiar with the plans said yesterday: "It's being talked about. I'd be very surprised [if it wasn't announced soon.]"

Tesco may announce the plans at its annual results, which are due to be posted on 11 April.

A spokesman for Tesco, which is in a closed period ahead of the results, declined to comment on the plans.

Terry Leahy, Tesco's chief executive, has been investing heavily in the group's e-commerce operations. In Tesco's Christmas trading statement he said Tesco Direct had achieved a tenfold increase in Christmas sales year-on-year, making Tesco the largest internet grocer in the world. In addition to groceries, Tesco Direct also sells books, gifts and homeware online.

In January Tesco unveiled a huge push into e-commerce, creating 7,000 jobs and trebling the number of stores offering home delivery with a view to gaining one million internet customers. The move followed an earlier announcement by Wal-Mart, the US retailer which bought the Asda supermarket chain, that it was to add 1,200 employees to boost its internet shopping services.

Tesco currently offers internet home shopping from 100 stores, involving a delivery charge of £5. Its 250,000 online customers generated sales of £125m last year, although Tesco did not give details of its e-commerce profits.

The success of the demerger of Freeserve, the internet service provider spun out of Dixons, the high street electrical retailer, provides the model for a demerger of Tesco Direct.

However, the fall in Freeserve shares - from 920.75p in early March to 497p last Friday - as the market has grown sceptical of internet stocks, is likely to have set back plans to float Tesco Direct sooner rather than later. In the meantime, it is expected to be operated as a subsidiary of the company.