Tesco shares soar as supermarket chain weighs up £7.2bn sale of Asian business

Lotus generated a fifth of the group’s profits last year but has faced several challenges

Ben Chapman
Monday 09 December 2019 12:39 GMT
The City reacted positively to the news, with analysts welcoming the approach, pointing out that it should generate a significant price tag
The City reacted positively to the news, with analysts welcoming the approach, pointing out that it should generate a significant price tag (iStock)

Tesco is considering selling its profitable Asian business for as much a £7.2bn in a move that would mark a significant retreat for the UK’s largest retailer.

Tesco said it has received “inbound interest” for its Lotus brand which operates more than 2,000 stores employing 60,000 people in Thailand and Malaysia.

Tesco's Asia business contributed 13 per cent to the group's global profits last year and would be considered a “trophy asset” by a number of major investors, said Clive Black, an analyst at Shore Capital.

The seupermarket chain said it was reviewing the situation but “no decisions concerning the future of Tesco Thailand or Malaysia have been taken”.

Shares in Tesco jumped more than 4 per cent in early trading on Monday to 242p after the City reacted positively to the news.

An exit from Asia would mean leaving one of the few international markets where Tesco has experienced sustained success.

Despite recent challenges, Thailand had remained an area earmarked for expansion with Tesco chief executive Dave Lewis unveiling plans in June to open a further 750 convenience stores.

Like-for-like sales at Tesco’s Asia business dropped 6.2 per cent in the last financial year, partly as a result of welfare cards issued by the Thai government that could not be used in Tesco stores.

​​Tesco expanded rapidly into Asia, the US and Europe in the 1990s under former chief executive Sir Terry Leahy but has pared back its overseas ambitions to refocus on the UK in the face of strengthening competition from discount rivals Aldi and Lidl.

Tesco sold its US business Fresh & Easy in 2013, citing “cultural differences” and announced a withdrawal from China after failing to make any significant headway with Chinese consumers.

An accounting scandal and record losses in 2014 prompted Tesco to launch a turnaround plan which has helped it regain UK market share. That included further disposals including the £4.2bn sale of Tesco’s South Korea business in 2015. If the Lotus sale goes ahead, Tesco would have stores only in the UK, Ireland and central Europe.

Mr Lewis shocked the retail sector by announcing in October that he would step down at the start of next year.

He returned Tesco to profitability after taking the helm in 2014 cutting prices, by slashing thousands of jobs, overseeing a merger with wholesaler Booker, and simplifying the product range. The formula helped turn a £6.4bn loss in 2014 into a forecast £2bn profit this year.

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