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Canadian Pension Plan Seals Tesco's Homeplus Deal with MBK Partners

Canadian Pension Plan Seals Tesco's Homeplus Deal with MBK Partners

Tuesday, September 8th, 2015

While you were lounging around the barbecue this Labor Day weekend, Tesco, along with MBK Partners and the Canada Pension Plan Investment Board, announced it will be selling its South Korean Homeplus chain for over $6 billion, ($5.1 billion after taxes and other costs).

Dave Lewis, Chief Executive Officer, Tesco

“This sale realizes material value for shareholders and allows us to make significant progress on our strategic priority of protecting and strengthening our balance sheet,” said Tesco’s CEO Dave Lewis. He told The Guardian this week that the money would be used mainly to redeem bonds and settle commercial debt over the next 18 months, but may also be used to purchase leases on some UK stores.

Currently, Tesco’s debt has reached over $33 billion, according to The Wall Street Journal, but this latest Homeplus deal could help reduce that debt by over $6 billion if approved by company shareholders. 

Tesco Homeplus

Tesco will get £3.35 billion ($5.1 billion) after adjusting for tax and other costs from the sale of its Homeplus chain to a consortium led by Asian private-equity firm MBK Partners and the Canada Pension Plan Investment Board. 

Moody’s and Standard & Poors credit rating agencies have cut Tesco’s debt to junk status since its financial troubles first began, but both agencies have commented that the sale of Homeplus was a step in the right direction, according to The Guardian.

Tesco Homeplus

“Our rating already anticipated that Tesco could enter into a transaction of this size,” said Sven Reinke, Senior Credit Officer at Moody’s. “Today’s announcement eases the negative pressure on the current rating. However, for positive pressure, Tesco’s underlying UK business needs to recover and I don’t think we are at that stage yet. We see signs of stabilization but not of a sustainable recovery.”

Tesco’s Homeplus chain operates 1,075 locations across South Korea and generated $7.7 billion in sales last fiscal year. According to The Washington Post, Singapore state investment firm Temasek Holdings Pte. Ltd. and the Canada Pension Plan Investment Board are both buying a 21.5% stake in Homeplus for $534 million as part of the deal. 

Tesco’s sale is expected to officially close during the fourth quarter of this fiscal year.