TESCO FREE DELIVERY

Monday 18 June 2012

UPDATE 1-Tesco to sell 50 pct of Japan operations to Aeon - Reuters India

UPDATE 1-Tesco to sell 50 pct of Japan operations to Aeon - Reuters India

Mon Jun 18, 2012 4:24pm IST

* Aeon to pay nominal sum for 50 pct stake

* Tesco to invest 40 mln stg before cutting exposure

* Tesco put Japan business up for sale in August

* Aeon looking to expand to drive domestic growth

* Tesco shares up 0.5 pct, Aeon shares close up 0.6 pct

By Ritsuko Shimizu and James Davey

TOKYO/LONDON June 18 (Reuters) - Tesco, the world's No.3 retailer, has ended a nine-year attempt to crack Japan's tough retail market by effectively paying Aeon Corp, the country's No.2 general retailer, to take its loss-making business there off its hands.

The deal, which will allow Tesco to focus on fixing its main British business after a shock profit warning in January, will inevitably re-heat speculation over the group's long-term commitment to its much larger loss-making Fresh & Easy business in the United States.

Many foreign retailers have struggled in Japan, hampered by fickle consumer tastes, a super-competitive landscape and prolonged, profit-sapping deflation. France's Carrefour and Britain's Boots are among the firms to have pulled out over the past decade.

The move is also the latest in a series by store groups exiting weaker markets as they struggle with sluggish demand in many developed economies. Carrefour announced a deal on Friday to pull out of Greece.

Tesco, which trails Carrefour and U.S. industry leader Wal-Mart by annual sales, put the Japanese business up for sale last August, hiring Goldman Sachs to find a buyer.

Japan is the smallest of Tesco's 13 international businesses, consisting of 117 stores in greater Tokyo.

TWO STAGE EXIT

The deal with Aeon, first reported by Reuters, will see Tesco exit Japan in two stages.

In the first phase, it will sell 50 percent of its shares in Tesco Japan to Aeon for a nominal sum. This will result in the formation of a joint venture with Aeon.

Tesco will then invest 40 million pounds ($63 million) as a joint venture partner to finance restructuring, after which it will have no further financial exposure to the Japanese business.

"Given ongoing trading losses of about 30 million pounds after approaching a decade in the market, Tesco appears to our minds to have taken the correct approach with funded withdrawal," said Shore Capital analyst Clive Black.

He said it showed chief executive Philip Clarke is bringing greater focus and capital discipline to Tesco.

The deal will help Aeon, which trails Japan general retailer Seven & I Holdings in terms of market value, expand its reach in its home market as it tries to drive growth.

Prior to the Tesco purchase, Aeon had spent more than $775 million over the last five years, according to Thomson Reuters data, including taking stakes in Japanese supermarket chains Maruetsu and Marunaka.

Tesco's shares were up 0.5 percent at 302.65 pence at 1025 GMT, slightly outperforming the STOXX Europe 600 retail index . Aeon shares closed up 0.63 pence at 961 yen before the announcement.

FOCUS ON UK TURNAROUND

After a surprise profit warning in January, Tesco is focusing on turning around its British business, which accounts for over 70 percent of its trading profit. Last week the firm posted a drop in underlying first-quarter British sales as its recovery plan struggles to gain traction.

In April, Clarke rejected shareholder calls to pull the plug on Fresh & Easy but said he did not expect the chain to break even until its 2013/14 year, compared with the end of 2012/13 previously.

Last week Tesco reported underlying sales growth at Fresh & Easy slowed to 3.6 percent in its first quarter from 12.3 percent in the fourth quarter, prompting renewed calls for management to reassess its strategy for the U.S. business.


Source: in.reuters.com

Tesco Pulls Out of Japan - Wall Street Journal

Tesco has finally announced details of its long-planned exit from Japan.

On Monday, the U.K. retailer said it struck a deal to sell half its operations in the country to Japanese retailer Aeon Corp. for a nominal sum, the first of a two-stage exit. The two companies will form a joint venture, with Tesco investing some 40 million pounds to finance further restructuring. After that, Tesco will have no further financial exposure to the Japanese business.

Tesco, which like other foreign retailers has struggled in Japan, said last August it would pull out of that market. Japan is the smallest of Tesco’s international businesses, with less than 0.5% market share in the Greater Tokyo area. Chief executive Phillip Clarke admitted that it was difficult to build a scalable business in Japan.

Tesco, Britain’s top retailer by sales, bought 78 shops from C Two-Network in 2003 to gain a foothold in Japan, and later bought 27 stores from private chain Fre’c the year after. It operates supermarkets and convenience stores under the Tsurakame, Tesco and Tesco Express names. However, those names have failed to become familiar household names along the lines of 7-11, Lawson, FamilyMart and Aeon.

Tesco is also in the midst of a restructuring at home as it faces a worsening retail environment in the U.K., announcing its first profit warning in 20 years in April. Rapid international expansion has also been blamed for the retailer’s woes, particularly its loss-making U.S. venture, Fresh & Easy.

Elsewhere in Asia, Tesco has fared much better. In Thailand in particular, Tesco is the market leader, and in March Tesco floated its Thai property fund in one of Asia’s biggest initial public offerings of 2012. South Korea has been another successful market for Tesco.


Source: blogs.wsj.com

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