TESCO MAY bid for a controlling stake valued at about $900 million in South Korean electronics retailer Hi-Mart Co Ltd, two sources with knowledge of the matter said, as the British grocer eyes growth markets to offset challenging times at home.
Disposable incomes across much of Europe are being squeezed by rising prices, muted wage growth and government austerity measures, with consumers also worried about the fallout from the euro zone sovereign debt crisis. Those challenges led to Tesco issuing its first profit warning in living memory last month.
Retailers such as Tesco are thus looking to diversify revenue streams into Asia, where retail spending is considerably higher due to stronger economic growth. The news of Tesco’s likely interest in the auction boosted Hi-Mart shares up 2.4 per cent, bucking a 1 per cent fall in South Korea’s benchmark share index. The stock ended up 1.7 per cent. Tesco shares were up 0.7 per cent in morning trade in London.
“It’s a good cash generating business to attract Tesco. But how serious Tesco is remains to be seen,” one of the sources said.
The top three shareholders of Hi-Mart, including Eugene Corp, have appointed Citigroup to advise on the sale.
The 57.6 per cent combined stake up for grabs is worth about $900 million based on Hi-Mart’s latest share price.
The auction is largely attracting interest from South Korean domestic retailers.
The eventual winner is looking to benefit from robust retail sales in Asia’s fourth-biggest economy.
First-round bids for Hi-Mart’s stake are due before the end of this month, said the sources, who declined to be identified as they were not authorised to speak publicly about the matter. Tesco declined to comment.
“Hi-mart is the leader in electronics retail business, so it has some competitive edge and specific channels which potential buyers don’t have,” said Hong Sung-soo, an analyst at NH Investment Securities.
Tesco already has exposure to the South Korean market through its fully-owned subsidiary
Homeplus, which operates 125 large retail stores and 267 supermarkets. – (Bloomberg)
