Tesco has agreed to sell its South Korean business Homeplus in a £4.2 billion deal in the latest phase of the supermarket group’s turnaround plan.
The business, which operates more than 1,000 stores, has been snapped up by a consortium of investors led by Korean private equity firm MBK Partners and including Canadian pension funds and Singapore sovereign wealth fund Temasek.
It follows weeks of speculation about the sale of Homeplus. Tesco is exiting the business after 16 years, with proceeds being used to pay down debt.
Chief executive Dave Lewis has embarked on a shake-up of Britain’s supermarket since taking over a year ago.
He has already announced plans to relocate its head office and shut down its final salary pension scheme as well as shutting 43 stores and axing plans to open 49 others.
Mr Lewis has also sold off Tesco Broadband and UK download business blinkbox
He said: “After a highly competitive process, we are announcing today the proposed sale of Homeplus, our business in the Republic of Korea.
“This sale realises material value for shareholders and allows us to make significant progress on our strategic priority of protecting and strengthening our balance sheet.”
Tesco said the deal was worth £4.24 billion on a debt-free basis, or £4 billion in cash.
After adjustment for “tax and other transaction costs” it will result in net cash proceeds of £3.35 billion. It is expected to complete in the final quarter of this year.
Mr Lewis took over at Tesco following sliding sales under predecessor Philip Clarke. The group has also been embroiled in scandal over an accounting black hole as large as £326 million. The Serious Fraud Office is investigating.
Last October, the chief executive unveiled a new set of priorities to focus on regaining competitiveness in its UK business, to shore up its balance sheet and to “rebuild trust and transparency”.
He launched a strategic review during which a “considerable level of unsolicited interest was received from several parties in relation to the Homeplus business” and the board decided to launch a competitive sale process.
Homeplus started in 1999 and today operates online and through 140 hypermarkets, 609 supermarkets and 326 convenience stores. It also operates 139 shopping malls adjacent to its hypermarkets. It employs more than 26,000 people.
The business generated revenues of £5.36 billion in the year to the end of February but slipped to an operating loss of £96 million due to one-off charges including write-downs of property values.