Tesco Data Unit Buyer Faces Contract Overhaul

Bidders for Tesco (Xetra: 852647 - news) 's Clubcard data unit will be forced to negotiate a new contract with the supermarket giant within five years, a prospect which may further deflate its hopes of attracting a bumper price for the business.

Sky News understands that Tesco has in recent weeks struck a revised agreement with Dunnhumby relating to its use of information about consumers' shopping behaviour.

That arrangement will expire in 2020, according to people close to the situation, meaning that a new owner faces having to secure another deal with the company which currently accounts for more than half of Dunnhumby's revenues.

Tesco has begun narrowing the field of bidders for the business, which it took control of in the early 2000s after it played a significant role in the grocer's emergence as the UK's dominant retailer.

The remaining contenders are said to include WPP Group, which is working with General Atlantic, a buyout firm; Permira, which is allied to Google; and Apax Partners and CVC Capital, which are bidding independently.

Tesco, which is recovering from the most tumultuous year in its history, was initially expected to reap a £2bn windfall from the sale of Dunnhumby.

But the restructuring of the data analytics unit's relationship with Kroger, a US retailer, means that the eventual price may be closer to one-third of that sum.

Sources said that in the year to February, Dunnhumby recorded sales of roughly £440m including its Kroger client, and close to £350m excluding that contract.

Pre (Shanghai: 600048.SS - news) -tax profits were £114m including the US client and £60m without, while Tesco accounted for a large chunk of Dunnhumby's profitability.

Tesco has also made what one bidder described as "aggressive" forecasts for Dunnhumby, suggesting that it could grow revenue to nearly £1bn and profit to almost £200m on the back of new client contracts by 2020.

Dunnhumby is not the only business which may be sold by Tesco, with its Korean retail operations expected to fetch a far larger sum.

There were rumours on Monday that the Dunnhumby auction could be abandoned, although a Tesco insider said they were unaware of any such plan.

The retailer, which is rebuilding in the wake of a £6.4bn annual loss for last year - one of the biggest in UK corporate history - has changed its chief executive in the last 12 months, sacking Philip Clarke and replacing him with Unilever (NYSE: UL - news) executive Dave Lewis.

Tesco is also the subject of inquiries by the Serious Fraud Office, Groceries Code Adjudicator and Financial Reporting Council.

The company declined to comment.