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Tesco considers billion pound sale of 'jewel' Asian business

Oscar Williams-Grut
·Senior City Correspondent, Yahoo Finance UK
A worker pushes trolleys at a Tesco Lotus supermarket in Bangkok January 12, 2012. Tesco issued its first profit warning in living memory on Thursday, sending shares in British grocers tumbling on fears the world's third-biggest retailer would launch a price war to fight back from its worst Christmas in decades.  REUTERS/Sukree Sukplang (THAILAND - Tags: BUSINESS EMPLOYMENT)
Tesco is considering selling its 2,000 Tesco Lotus supermarkets in Thailand. Photo: REUTERS/Sukree Sukplang

Shares in Tesco (TSCO.L) jumped on Monday after the company said it was considering a sale of its Asian business.

Tesco said in a statement it received “inbound interest” about a potential sale of its chain of supermarkets in Thailand and Malaysia.

As a result, the company said it has “commenced a review of the strategic options for its businesses in Thailand and Malaysia, including an evaluation of a possible sale of these businesses.”

Tesco said the review was in its early stages and no decision about a possible sale has been taken.

Tesco operates almost 2,000 supermarkets under the brand Tesco Lotus in Thailand and has around 75 Tesco stores in Malaysia.

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Clive Black, a retail analyst at stockbroker Shore Capital, said the Thai business was “a jewel in Tesco's crown” and any deal would have to “involve substantial monetary sums.”

Bruno Monteyne, a retail analyst at investment bank Bernstein, said Tesco’s Asian business could sell for between £6.5bn and £7.2bn. The Thai chain is “a high-quality business,” he said, but is “undervalued as part of the group.”

“That in itself provides ample justification to consider a disposal, especially if there is unsolicited interest,” Monteyne wrote in a note to clients.

“The drawback of selling Asia would be to lose one of the few areas where there is potential for high return on invested capital growth. However, if the valuation properly reflects those high returns and growth options, then selling Asia would make sense.”

Monteyne said shares could rise as much as 12% on any deal.

Black said a stumbling block could be the fact that Tesco would be left “devoid of a growth piston in its engine” post-sale.

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“More broadly, and more for note than anything else, any disposal would represent a remarkable unravelling of the ambitious globalisation plans of the late 1990s,” he wrote in a note.

Tesco gave no details on who approached it about a potential sale of the Asian business but Black said:

“One can... see how a number of major trade, family office, and private equity investors in Asia that could be interested in this trophy asset within the Tesco Group albeit quite what local regulators think needs to be considered.”